With only 14 trading days left before Christmas, have you finished all of your S&P/ASX 200 Index (ASX: XJO) stock shopping yet?
In the first trading week of December, the benchmark index has closed in the green twice and in the red once. In early afternoon trade today, the ASX 200 is up 0.3%, which sees the index up 0.6% so far this month and up 11.2% in 2024.
But with history as our guide and Santa on the way, the Aussie stock market could well have more gains ahead before we turn the calendar to 2025.
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ASX 200 investors eyeing a Santa rally
You've probably heard of the Santa rally.
It relates to the historic trend of stock market outperformance in December. And that's not only true on the ASX 200, but for most major global exchanges.
So, if you've been thinking about taking a break from buying shares in the lead-up to Christmas, you may want to think again.
According to data analysed by eToro going back some 50 years, the ASX 200 has averaged 1.78% returns in December. That compared to a 1.36% average monthly return for the other 11 months of the year.
Indeed, December has historically accounted for 29% of the total annual gains delivered by the benchmark index.
And if you're thinking about getting into the high-performing US stock markets, you may wish to wait until after Saint Nick has come and gone.
According to eToro data, the ASX 200 tends to outperform the Nasdaq Composite Index (NASDAQ: .IXIC) and S&P 500 Index (SP: .INX) over the Christmas period.
"December has historically been a strong month for stock markets around the world, including the ASX 200. This is reflective of what experienced investors know as the 'Santa rally'," eToro analyst Josh Gilbert said.
What drives the Christmas stock market rally?
If we rule out Christmas magic and helpful elves, why does the ASX 200 tend to have such a strong run ahead of the holiday period?
Gilbert points to several potential reasons, including optimism about the new year and the 'January effect' of new investor allocations.
Regardless of what drives the market higher, he said, "It's clear that retail investors who miss out on this period may not maximise their yearly returns."
Gilbert added, "Christmas may have already come early for some investors this year, with new record highs for the ASX 200, bitcoin and the S&P 500 all before December. But, that seasonal joy doesn't look to be over as we head into 2025."
He concluded:
The stage for markets remains positive, and the view of investors positioning for the year ahead is one of the key drivers for the Santa Rally.
With a 12-month outlook for the year ahead, allocations are often positive and that's more apparent this year with a strong fundamental backdrop that will keep driving markets.
