22 favorites for the Santa Claus rally: UBS

  • December often brings a “Santa’s Gathering” – where the stock market soars in the last week of the month.
  • UBS analysts have identified a market where momentum has outperformed in December more than 75% of the time since 2000.
  • They share their 20 most dynamic stocks that could benefit if the rally happens again this year.

Many investors are hoping they were on Santa’s “nice” list after a difficult trading end in November, where news of the Omicron coronavirus variant rocked global markets.

December is considered the most prosperous month for stocks and investors have grown accustomed to a phenomenon known as the “Santa Claus rally”.

The term was first coined by stock analyst Yale Hirsch in the early 1970s to refer to the sustained rise in the stock market during the last week of December and the first two trading days of January.

Now it is often used to describe the weeks from

Black friday

until the end of the year.

According to the Stock Trader’s Almanac, the “Santa Claus Gathering” occurred for more than two-thirds of December between 1960 and 2020. Each time, the S&P 500 recorded an average gain of 1.3% during that period. seven day trading period.

Data from investment firm Schroders shows U.S. stocks have performed positively 77.9% of December since 1926.

Many market analysts and strategists have spent time exploring the drivers of the “Santa Claus Rally” by offering explanations, such as professional managers rebalancing their portfolios, looking for performance or an increase in customer joy. celebrations among investors. But no consensus has been established.

This December outperformance is not unique to the US market.

UBS quantitative analysts were exploring surprising anomalies in the UK market and found strong factor seasonality in December.

“Interestingly, we found the momentum outperforming at the end of the year with a success rate of over 75%,” UBS analyst Amanda Belcaid said in a November 30 report.

Their analysis consisted of looking at the momentum factor in three of the most popular UK indices, the FTSE 350, the FTSE All Share and the FTSE 100, from December 2000 to December 2020.

“The long-short performance of holding dynamics in December would have generated cumulative returns of 31%, 38% and 33% for the FTSE 100, FTSE 350 and FTSE All Share respectively over the past 21 years,” said Belcaid said.

If a Santa Claus rally were to happen again this year, it would give an already hot UK market a boost, where the FTSE 100 has returned 8% to investors so far. Last year, the index returned -15%.

However, this is not a guarantee that a rally will take place. In December 2018, US stocks suffered a dramatic crash.

Markets are currently facing a number of uncertainties ranging from soaring inflation to debt ceiling negotiations this month and

Federal Reserve

in the United States, to the increase in Omicron cases and coronavirus blockages in Europe.

However, for investors still interested in playing the Santa Claus rally in the UK market, UBS analysts have presented 22 top picks for December.

“Success rates are highest for consumer discretionary and financials at an impressive 80%, followed closely by materials at around 75%,” Belcaid said. “An investor could therefore also benefit from momentum in December in these specific sectors.”

Dynamic investing is less about ‘buy low, sell high’, but rather buying a stock that is already rising in value, in the hope that it will continue to do so, depending on its underlying business, as the actions have a degree of momentum.

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