AJ Bell press comment – 3 January 2023
- FTSE 100 fell by 1.6% in December, while the Stoxx Europe 600 lost 3.5% and S&P 500 slid by 6%
- Since inception the FTSE 100 has fallen just eight times in the month of December, including 2022
- The preceding seven occasions were followed by a double-digit percentage increase the following year
- S&P 500 up the following year on five of the prior seven occasions when the Santa Rally failed to materialise
“So much for the Santa Rally, as it failed to deliver in December, when the FTSE 100 fell by 1.6%, the Stoxx Europe 600 lost 3.5% of its value and America’s S&P 500 slid by 6%,” says AJ Bell investment director Russ Mould. “However, such a sorry end to one year does not mean that the new year is guaranteed to lack cheer, at least if history is any guide.
“Last December may have offered the worst end to a year since 2018, but stock markets on both sides of the Atlantic advanced smartly in 2019, as if to suggest the prevailing pessimism at the end of one year set a low bar for valuations and expectations in the next.
“There is no shortage of downbeat data right now either – war, inflation, recession and rising interest rates remain dominant themes – so who is to say that what looks, on paper, like a cheap currency, coupled with a low earnings multiple and plump dividend yield for the FTSE 100, will not tempt buyers and confound the doubters in 2023?
“Since its inception in January 1984, the FTSE 100 has fallen just eight times in the month of December, which remains, on average its single best month over the past 38 years.
“The eighth time was in 2022 so we shall have to see what that means for 2023. But on six of the preceding seven of those occasions, the benchmark index rose at a double-digit percentage clip in the following year – 1986, 1991, 1995, 2003, 2016 and 2019. The only exception was when the festive season fell flat in 2014 and the FTSE fell by 4.9% in 2015.
|
Year |
December of that year |
FTSE 100 in that year |
FTSE 100 in next year |
|
1984 |
4.3% |
23.2% |
14.6% |
|
1985 |
(1.8%) |
14.6% |
18.9% |
|
1986 |
2.6% |
18.9% |
2.0% |
|
1987 |
8.4% |
2.0% |
4.7% |
|
1988 |
0.0% |
4.7% |
35.1% |
|
1989 |
6.4% |
35.1% |
(11.5%) |
|
1990 |
(0.3%) |
(11.5%) |
16.3% |
|
1991 |
3.0% |
16.3% |
14.2% |
|
1992 |
2.4% |
14.2% |
20.1% |
|
1993 |
7.9% |
20.1% |
(10.3%) |
|
1994 |
(0.5%) |
(10.3%) |
20.3% |
|
1995 |
0.7% |
20.3% |
11.6% |
|
1996 |
1.5% |
11.6% |
24.7% |
|
1997 |
6.3% |
24.7% |
14.5% |
|
1998 |
2.4% |
14.5% |
17.8% |
|
1999 |
5.0% |
17.8% |
(10.2%) |
|
2000 |
1.3% |
(10.2%) |
(16.2%) |
|
2001 |
0.3% |
(16.2%) |
(24.5%) |
|
2002 |
(5.5%) |
(24.5%) |
13.6% |
|
2003 |
3.1% |
13.6% |
7.5% |
|
2004 |
2.4% |
7.5% |
16.7% |
|
2005 |
3.6% |
16.7% |
10.7% |
|
2006 |
2.8% |
10.7% |
3.8% |
|
2007 |
0.4% |
3.8% |
(31.3%) |
|
2008 |
3.4% |
(31.3%) |
22.1% |
|
2009 |
4.3% |
22.1% |
9.0% |
|
2010 |
6.7% |
9.0% |
(5.6%) |
|
2011 |
1.2% |
(5.6%) |
5.8% |
|
2012 |
0.5% |
5.8% |
14.4% |
|
2013 |
1.5% |
14.4% |
(2.7%) |
|
2014 |
(2.3%) |
(2.7%) |
(4.9%) |
|
2015 |
(1.8%) |
(4.9%) |
14.4% |
|
2016 |
5.3% |
14.4% |
7.6% |
|
2017 |
4.9% |
7.6% |
(12.5%) |
|
2018 |
(3.6%) |
(12.5%) |
12.1% |
|
2019 |
2.7% |
12.1% |
(16.9%) |
|
2020 |
3.1% |
(16.9%) |
17.8% |
|
2021 |
4.6% |
17.8% |
0.9% |
|
2022 |
(1.6%) |
0.9% |
??? |
Source: Refinitiv data
“The S&P 500 index seems similarly adept at shaking off some Christmas indigestion. Looking at the US benchmark over the same timeframe reveals that Santa failed to deliver a festive surge on just eight occasions, the same as in the UK.
“Again, December 2022 was the eighth time the Santa Rally failed to deliver, and the S&P 500 rose in the following year on five of the prior seven occasions, with the index offering double-digit percentage gains on three of those five instances.
|
Year |
December of that year |
S&P 500 in that year |
S&P 500 in next year |
|
1984 |
2.2% |
1.4% |
26.3% |
|
1985 |
4.5% |
26.3% |
14.6% |
|
1986 |
(2.8%) |
14.6% |
2.0% |
|
1987 |
7.3% |
2.0% |
12.4% |
|
1988 |
1.5% |
12.4% |
27.3% |
|
1989 |
2.1% |
27.3% |
(6.6%) |
|
1990 |
2.5% |
(6.6%) |
26.3% |
|
1991 |
11.2% |
26.3% |
4.5% |
|
1992 |
1.0% |
4.5% |
7.1% |
|
1993 |
1.0% |
7.1% |
(1.5%) |
|
1994 |
1.2% |
(1.5%) |
34.1% |
|
1995 |
1.7% |
34.1% |
20.3% |
|
1996 |
(2.2%) |
20.3% |
31.0% |
|
1997 |
1.6% |
31.0% |
26.7% |
|
1998 |
5.6% |
26.7% |
19.5% |
|
1999 |
5.8% |
19.5% |
(10.1%) |
|
2000 |
0.4% |
(10.1%) |
(13.0%) |
|
2001 |
0.8% |
(13.0%) |
(23.4%) |
|
2002 |
(6.0%) |
(23.4%) |
26.4% |
|
2003 |
5.1% |
26.4% |
9.0% |
|
2004 |
3.2% |
9.0% |
3.0% |
|
2005 |
(0.1%) |
3.0% |
13.6% |
|
2006 |
1.3% |
13.6% |
3.5% |
|
2007 |
(0.9%) |
3.5% |
(38.5%) |
|
2008 |
0.8% |
(38.5%) |
23.5% |
|
2009 |
1.8% |
23.5% |
12.8% |
|
2010 |
6.5% |
12.8% |
(0.0%) |
|
2011 |
0.9% |
(0.0%) |
13.4% |
|
2012 |
0.7% |
13.4% |
29.6% |
|
2013 |
2.4% |
29.6% |
11.4% |
|
2014 |
(0.4%) |
11.4% |
(0.7%) |
|
2015 |
(1.8%) |
(0.7%) |
9.5% |
|
2016 |
1.8% |
9.5% |
19.4% |
|
2017 |
1.0% |
19.4% |
(6.2%) |
|
2018 |
(9.2%) |
(6.2%) |
28.9% |
|
2019 |
2.9% |
28.9% |
16.3% |
|
2020 |
3.7% |
16.3% |
26.9% |
|
2021 |
4.4% |
26.9% |
(19.4%) |
|
2022 |
(5.9%) |
(19.4%) |
??? |
Source: Refinitiv data
“This is not to say 2023 will be a shoo-in for further capital gains in the US. Although prevailing pessimism means it is tempting to argue the consensus will be wrong, simply because the overarching gloom may already be priced in, at least partly, by the S&P 500’s 19% fall last year – mood tends to follow price, after all.
“The US does not look as cheap relative to its own history as the UK and doesn’t come with the same dividend yield either (although buybacks usually form a larger part of US cash returns to investors).
“But if inflation does start to cool and the Fed can pause interest rate hikes in the first half and then pivot to cutting them in the second, it gets easier to build a bull case for US stocks. The danger, though, is the Fed repeats policymakers’ mistakes on the 1970s and moves on rates too early, permitting (or even unwittingly facilitating) second and third waves of inflation, which could set markets up for a sharp rise in interest rates, and potentially a nasty fall in share prices, in 2024.”
