What to expect from markets during the festive season

It is that unmistakeable time of year when every single shopping centre reminds us – with flashing Christmas lights and beautifully festive decorations – that Christmas is just around the corner. 

And with all the hype surrounding the festive season, it is difficult not to get carried away yourself, because it is, after all, most people’s favourite time of year.  

People are always looking for reasons why the market moves up or down, but so many of them overlook the holiday spirit. 

When we take a look at the performance of the FTSE/JSE All Share Index, only 18 of all Decembers (or 36%) over the last 50 years have ended on a negative note.

Since October 1968, it has grown by 12% per year (excluding dividends) and more than a quarter of this growth was achieved during Decembers alone. 

Of course, not unlike any other historical figures, “December holiday” figures carry no guarantees for future performance. 

In addition to that, the investment environment we currently find ourselves in, with political turmoil in South Africa, Brexit and the sharp decline in global markets, it is going to be quite a challenge to end this year with the stock market on a positive note.

All I know is that Christmas is fast approaching, and despite the fact that the FTSE/JSE All Share Index was still negative by 11% at the time of writing (on 21 November), I am definitely not going to risk guessing that the market will close on a negative note this December. 

As positive as historical data regarding Decembers over the last 50 years may be, when I viewed each month in isolation, it was quite interesting to note that, over a 12-month rolling period (i.e. from one December until the next), it was also the worst-performing of all the months, despite being positive 64% of the time. 

If you had bought shares every June, your rolling 12-month returns would have been the best. 

May, the month during which most stockbrokers get the most instructions to sell, performed second-best over a rolling 12-month period. 

From a statistical viewpoint, Decembers do appear to be positive most of the time. 

And I would not want to declare the market’s recent decline a trend that is likely to flow into next month. 

The fact remains that we still find ourselves in an extremely high-risk investment environment and those risks cannot be ignored.

Aside from the negative market growth this past year, when you take a step back, things look even worse when we look at the last five years’ data. 

Up to the end of October 2018, the FTSE/JSE All Share Index performed worse than the money market over the last five years, which shows us just how challenging our current market environment is.  

Personally, however, I see more and more value emerging in our local market and I do believe that a turnaround can take place at any moment. 

In the meantime, be safe and prepared, because Christmas is just around the corner. 

Schalk Louw is a portfolio manager at PSG Wealth. 

This article originally appeared in the 6 December edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.