Those gearing up for a ‘Santa rally’, the much-fabled time in which stock prices rise in the month of December, were left sorely disappointed this week. December often enjoys a type of calendar effect with investors rushing to put capital into the markets before the year finishes; indeed, the last month of the year is characterised by the highest average return for any month.
There were no presents left in Santa’s sack this year for investors however, as the final full week of trading piled on further losses, ensuring that not only a late rally failed to materialised but markets endured their worst festive period since the depths of the Great Depression in 1931.
With thinner trading volumes than usual, markets effectively trod water during the beginning of the week. As market commentators waited for indications that the US Federal Reserve would recognise weakening economic fundamentals and turbulent market conditions during their latest press conference, the tension was palpable. A speech earlier by Chinese President Xi Jinping, which investors hoped would lift morale, had little impact after he offered no specific support measures for China’s economy.
In the end, the Fed’s announcement on Wednesday only served to compound losses as Fed Chair, Jerome Powell, added to the selling as he said the pace of the balance sheet reduction is on a pre-set course and adjusting the pace is not an option at this time. Moving overnight rates up 0.25% to 2.25%-2.5%, the Fed succeeded in spooking Wall Street indices, causing the Dow Jones and S&P500 to fall around 1.5% each.
It wasn’t all bad news this week however, as UK Retail Sales for November surprised on the upside where numbers jumped more than expected. Despite a glum outlook from high street retailers, including Mike Ashley who commented that November was “unbelievably bad”, figures from the Office for National Statistics showed sales rose 1.4% from October, despite economists’ forecasts of about a 0.3% gain.