The holiday season is here, and it's not just Christmas cheer in the air – ASX shares may be ready to deliver a gift of their own.
The Aussie stock market has historically ended the year on a strong note, and not just once or twice.
Known as the "Santa rally", this trend refers to the S&P/ASX 200 Index (ASX: XJO)'s historical gains during the final weeks of December and into January.
With the ASX 200 index already up nearly 10% in 2024, will there be a Christmas surge to finish off the year? Let's see what the experts think.
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A festive finish for ASX investors
The Santa rally in ASX shares isn't just a myth or holiday magic. For instance, brokerage platform eToro recently analysed market data spanning 50 years to study the trend.
As my colleague Bernd covered, eToro found the ASX 200 tended to perform strongly in December, averaging gains of 1.8% for the month (versus 1.4% in the rest) and accounted for nearly 30% of gains each year.
Analysts suggest this outperformance stems from a combination of factors, but whatever the case, it is prevalent.
According to The Australian, Bell Potter's Richard Coppleson found that ASX shares have finished higher 84% of the time from December 15 to the first week of January since 1980.
Coppelson also found that when the ASX 200 had a strong 11 months prior, December returns tended to be even stronger. That puts us in a good spot for 2024.
What's drives ASX shares higher?
A major driver of this seasonal strength each year is the timing of dividends paid to shareholders. Coppelson says this trend is set to continue this year.
According to the expert, shareholders from some of Australia's largest companies will receive more than $10 billion in dividends between December 16 and 20.
Much of this cash typically finds its home back into ASX shares, either through dividend reinvestment plans or direct stock purchases.
Not to mention the monthly inflows into superannuation funds, which, Coppelson estimates to contribute another $2.2 billion to the market, according to The Australian.
Investor sentiment is also a key factor to any Santa rally, says James Woods of Rivkin Report.
The holiday season tends to bring about a sense of goodwill and positivity, both in the broader economy and among investors. This festive spirit can lead to increased consumer spending, which benefits certain sectors like retail, potentially driving up stock prices.
Is sentiment maxed out right now? eToro doesn't necessarily think so. The firm's Josh Gilbert believes the "seasonal joy doesn't look to be over as we head into 2025".
Let's hope investors continue feeling festive.
Foolish takeout
As we head into the final weeks of 2024, all eyes are on whether the Santa rally will deliver its usual cheer to ASX investors.
Of course, past performance is no guarantee of future results. But the data does suggest that markets rallied most of December.
Time will tell if we're in for the same this year.
