Australia Markets close in 2 mins

Will the share market see a ‘Santa rally’ this year?

Here's what ASX investors can expect at the end of the year. (Source: Getty)

Among stock investors, the ‘Santa rally’ is a well-known phenomenon: it’s the tendency for the share market to climb up over the Christmas and New Year period, bolstered by festive cheer, extra holiday spending, and institutional investors settling their books before the new year.

The numbers check out: according to AMP Capital chief economist Shane Oliver, Australia has seen a Santa rally in the last decade, with the ASX seeing an average uptick of 2.2 per cent in the last two months of December, eight years out of 10.

And while there’s definitely a pattern here, can we bet on another Santa rally this year?

According to most economists, the answer is yes – just don’t expect too much.

“Investors will be delighted to check their stockings and realise they won’t be receiving the lump of coal on Christmas day they got last year,” said JP Morgan Asset Management Kerry Craig.

Most importantly, the uncertainty surrounding two key geopolitical risks: the UK election/Brexit and the US-China trade spat – has been tempered for now; but it’s not yet time to pop the champagne.

“While Brexit is now a certainty, investors can get set to enjoy headlines regarding the marathon of negotiations that are about to begin, which will keep many companies facing an uncertain future,” Craig said.

“Meanwhile, on the U.S. – China trade truce, the agreement is certainly positive but agreed is not signed and delivered, and won’t come into effect until February of next year.”

According to CommSec senior economist Ryan Felsman, the ASX has had a dream run so far this year, with investors seeing returns of 24-25 per cent.

However, this is in direct contrast to how the domestic economy has moved, with GDP growth at its weakest levels since the global financial crisis.

In terms of how the year would be rounded out, he said that investors would be watching data from the jobs report that will be released Thursday this week. In October, the labour market saw 19,000 fewer jobs.

“What we’re expecting to see is an additional 15,000 jobs,” he told Yahoo Finance. “If that does materialise, markets will shrug their shoulders and continue on.

“But if there is a deterioration significantly in the labour market, then there will be a bit of a risk-off move or at least a strong rally in bonds in particular, and that may create a little bit of a hurdle for equities.

“We're expecting the market to continue to rally on the back of those positive stories overseas, particularly in Christmas until year-end.”

In an investors’ note sent over the weekend, Oliver said the outlook was looking good for another Santa rally this year.

“December is normally a strong month. Last year Santa didn’t really come until after Christmas owing to US related political risks,” he said.

Echoing Craig’s comments, he concluded: “This year it may be coming early thanks to the recent decline in various geopolitical threats.”

So, if you’re invested in the stock market, you can generally bank on a bit of Christmas cheer – unless, of course, another tweet from US President Donald Trump throws everything into chaos.