Investors’ sharemarket Santa rally is a better bet than last year

Historically a wave of Christmas cheer pushes share prices higher late in the year, but analysts’ opinions are mixed about 2023.

Investors were disappointed last year when the share market’s traditional Santa rally failed to materialise, and 2023 is looking a little shaky too.

Share analysts have mixed views about whether the market will deliver a capital gains Christmas present this year, although the chances of a rally appear better than 2022 when the S&P/ASX 200 index dropped 3.4 per cent in December after a strong run.

Weakness on the ASX this year in August, September and October have taken heat out of the local market. The past decade has delivered a mixed bag of results for investors hoping for a pre-Christmas climb, with seven Decembers positive and three negative.

Bell Direct market analyst Grady Wulff said the ASX had been resilient this year “so while we expect a Santa rally most years, we may not see the rally to close out 2023”.

“There are some key opportunities in the market though in sectors like healthcare which have been heavily sold off in 2023 due to higher valuations in the post-pandemic era,” she said.

Ms Wulff said the ASX’s 3.4 per cent slide in October compared with its average October rise of 1 per cent over the past 30 years. “This indicates 2023 is a different year to most on the local market,” she said.

Bell Direct market analyst Grady Wulff says Santa may not come for shareholders.

“With such volatility for the ASX and global markets over the year, we are holding our breaths to see whether a Santa rally can pull off or whether the highly anticipated pullback is coming.”

Baker Young managed portfolio analyst Toby Grimm said “we think there’s a pretty good chance it does occur”.

“There’s a strong seasonal pattern over the last 30 years ago,” he said.

And “three successive significant declines in August, September and October” increased the potential for a rally to materialise in the remaining weeks of calendar 2023, he said.

“We have been positioning for that.”

Mr Grimm said there were always risks for investors, but encouraging economic data had helped tip the odds towards a rise rather than a fall.

“The key is long-term returns,” he said.

“We will get up months and down months, and it’s impossible to product what will happen in the short term, but history says over the longer term equites generate superior returns to other asset classes.”

IG market analyst Tony Sycamore said over the past 10 years October, November, December, January and February had all been positive months for the ASX.

“We are in a sweet spot … but October didn’t play out that way – it went down,” he said.

“It’s not uncommon to see some volatility, but overall equity markets have rallied, and that is something to be mindful of.”

Mr Sycamore said investors wanting to take advantage of a rally could consider stocks that had been heavily oversold, such as health care giant CSL. “They have hit a four-year low, below their Covid crash low, believe it or not,” he said.

Despite ongoing geopolitical risk, particularly in the Middle East, the ASX 200 could trade up towards 7200 in the coming weeks, Mr Sycamore said.

“We still have in place the fundamentals for a rally on Wall Street into the year ahead,” he said.

The Santa rally is a global phenomenon, spurred by the world’s biggest stock market, the US.

Moomoo market analyst Jessica Amir said December had been the best month in history for the S&P 500 index in the US.

The pre-Christmas trading period has traditionally been good for investors.

“The reason the Santa rally has historically occurred is not only because a lot of companies are doing share buybacks, but also because consumer discretionary companies see large rises in sales following Black Friday sales, to pre-Christmas shopping,” she said.

“Watch the world’s largest ETFs that track the S&P500, the SPY, IVV and the SPX.

“Watch sectors that bode well in interest rates cutting cycles, such real estate, REITs and builders. Watch ETFs such as Real Estate Select SPDR ETF, and iShares USD Real Estate ETF.”

Bell Direct’s Ms Wulff said the key threats to a Santa rally in 2023 were inflation remaining sticky, China’s economy and last week’s Reserve Bank rate rise impact investors’ outlooks.

“Rising bond yields may also detract from a Santa rally in 2023 as investors look for safer and secure returns against the volatility of the equity market,” she said.