State of Play – Beware the Santa Rally!

Beware the Santa Rally!

2022 has been a tough year for Australian and global sharemarkets. Yet remarkably, we may well end up pretty much where we started! The ASX was punctuated with dramatic plunges and corrections followed by exhilarating rallies. All to end up flat for the year! Global sharemarkets have not faired as well.

The chart below shows the rollercoaster ride that Australian investors faced during the year. It is the ASX200 index over the last 12 months. Most of the downturns can be attributed to interest rate changes, while the rallies typically occurred when investors became more comfortable with the changes and central banks talked about slowing the rate increases. Then a new set of data would be presented, showing the resilience (and overheating) of our economy meaning the RBA had little choice but to raise rates and down we’d go again. Rinse and repeat!

2022 reminded us of the short term volatility of investing in sharemarkets, and many of our conversations with clients were about continuing to focus on the long term. Holding high quality investments in a diversified portfolio for the long term should continue to be a sound strategy.

The “Santa Rally” is a phenomenon that describes the upward push in global sharemarkets in November and December. It has again occurred this year. Many years, macroeconomic factors and underlying market conditions are ignored, and a jolly march in a positive direction occurs. This gives year-end statements a nice look to them, and the cynic in me says that fund managers who are paid bonuses based on year-end results have a hand in creating these results. Still, everyone seems happier around the Festive Season, and everyone is certainly happier with a sharemarket heading in the right direction. Santa Rally’s are based on low volumes of trading, and join “Sell in May and Go Away” and “Halloween Effect” as bizarre calendar-based adages that take on a life of their own.

2023 will no doubt provide some headwinds for investment markets. Many of the factors that caused huge volatility in 2022 still remain, and they remain unresolved. Russia/Ukraine conflict, energy crises, the threat of global recession and cost of living pressures (and central bank’s responses) will drive performance for some time yet. Despite all of this, the ASX (and most global markets) have moved up in recent weeks. These may take some of the wind out of the sails of the Santa Rally early next year.

Extreme volatility can create uncertainty for the investor, both novice and experienced. To ensure you are on the right path, contact us today.

This website contains general advice which does not consider your particular circumstances. You should seek advice from Wakefield Partners who can consider if the general advice is right for you.