GRIMALDI & PARTNERS: Christmas Rally 2024 – More show or reality?

By Silvano Grimaldi, CEO of the independent asset management GRIMALDI & PARTNERS AG

The "Christmas rally" or "Santa Claus rally" is a phenomenological trend in the financial markets in which share prices often rise above average in December. In 2024, there are both reasons that speak for such a rally and factors that could hinder it. Silvano Grimaldi, CEO of the independent asset management company Grimaldi & Partners AG, gives you answers to these questions.

Reasons for a Christmas rally
Historical trend: December is historically the best month of the year for the stock markets. For example, the DAX achieves an average of 17% of its annual return in December, as a survey by the broker eToro shows.

Seasonality: The S&P 500 has only ended December with negative returns in 25% of the years over the past four decades. The positive seasonality in December therefore suggests a possible rally.

Currency effects: A weak domestic currency, such as the euro at present, can support the German stock market as this benefits export companies.

Counterarguments
Political risks: The recent election of Donald Trump as US president and the failure of the traffic light coalition in Berlin have increased political uncertainties that could affect the markets. These political risks, especially in Europe, could act as a brake on the stock markets.

Collective bargaining conflicts: The upcoming collective bargaining conflict at Volkswagen, which could potentially lead to strikes, and the planned plant closures due to overcapacity are further factors that could affect market dynamics, especially in Europe.

Market volatility: Although the historical trend is positive, there is always a risk of a correction, especially if the short-term uptrend falls below certain key levels. For example, a break below 5853.01 points in the S&P 500 could trigger a medium-term correction that could have an impact on international stock markets.

Conclusion
Despite the political and economic uncertainties, there are good reasons why a Christmas rally could be possible in December 2024. The historical trend and seasonal strength of the equity markets in December speak in favor of this. In addition, currency-based advantages and the expectation of interest rate cuts by central banks in the coming year could support market dynamics.

However, investors should not ignore the current political and economic risks. Cautious optimism is appropriate, especially after the DAX in Frankfurt closed above 20,000 points for the first time yesterday, which can be seen as the starting signal for a Christmas rally.

Overall, it is advisable to hold a diversified portfolio and bet on long-term trends rather than relying solely on short-term market movements. By investing in quality stocks or with a mixed investment strategy that includes both good stocks and bonds, investors can take advantage of the opportunities of a Christmas rally while minimizing risks.