Is it too early to talk about a Santa Claus rally?

Date: November 6, 2014

One week away from President Tony Tan turning on the lights on Orchard Road, and with Marina Bay Sands already flanked with a line of Christmas trees, the markets will soon consider the likelihood of the fabled ‘Santa Claus rally’.

The so-called Santa Claus rally typically follows a certain sequence of events. Trading in December is often characterised by an initial period when many traders close their losing positions, exit the markets before low trading activity during the period between Christmas and New Year. A burst of trading activity then bolsters the markets, as January arrives, with bonuses and new year’s resolutions encouraging traders back into the markets. A further, less significant lull and surge also sometimes occurs over Chinese New Year.

With Chinese New Year 2015 falling on its latest calendar date since the turn of the millennium – on 19 February – it will be interesting to see whether rallies materialise and, if so, how long they might last.

Surprises ahead?

When it occurs, any Santa Claus rally is typically a seasonal rebound from weakness in the preceding months, so this year may spring some surprises, as we currently have no shortage of activity and volatility across the markets following on from the resurfacing of political and economic uncertainty.

In the US, the Federal Reserve continues to consider its timeline for a first rate hike following its recent, final taper. The US midterm elections have handed the Senate to the Republican Party, which will further hamper President Obama’s prospects of controlling his ever-growing long list of crises, domestic and international.

The outlook in the eurozone in the months ahead is also of interest, with the European Commission predicting negligible growth in the bloc in 2015, dramatically reducing their previous prediction from just six months ago. In Asia, the Bank of Japan made a shock announcement as they stepped in to the quantitative easing void left by the Fed, while the Hong Kong students are reportedly planning to take their protest to Beijing next week. Sparks could fly.

Closer to home, the Monetary Authority of Singapore recently declared the nation’s economy ‘on track for moderate growth’, also asserting that ‘Productivity growth will be constrained in the short term’, with most fingers pointed at the slow pace of the global recovery. More encouragingly, the purchasing managers’ index (PMI) has this week risen to levels not seen since April 2011, and the upcoming Trans-Cab IPO is whetting investor appetite.

Commodities have also held traders’ interest in recent times, with Saudi Arabia’s recent attempts to compete with cheap US oil contributing further to the sharp slump in oil prices while, conversely, natural gas has surged. And despite a significant, prolonged fall in the price of gold, it is now more expensive relative to silver, than it has been for five years.

Free seminar

So we’re a long way off any ‘calm’ – typical of this time of year – before the storm of any eventual Santa Claus rally. Trading opportunities abound in the markets today.

CMC Markets’ Chief Market Strategist, Michael McCarthy, will visit Singapore on Tuesday 18th November to deliver a seminar discussing the outlook for the Singapore economy and the global markets, through any eventual Santa Claus rally and beyond. Click here to register for this free event.

This article is contributed by CMC Markets