Interactive Investor

It's now or never for Santa rally

7th December 2016 09:00

Lance Roberts from ii contributor

With the [US] market now back to overbought conditions, it is now or never for the traditional "Santa rally".

If we go back to 1990, the month of December has had average returns of 2.02% with positive returns 81% of the time. Over the past 100 years, those numbers fall slightly to a 1.39% average return with positive returns 73% of the time.

Statistically speaking, the odds are high that the market will muster a rally over the few weeks headed into the end of the year.

As discussed over the last couple of weeks, this is not to be unexpected, as portfolio managers and hedge funds "stuff their stockings" of highly visible positions to have them reflected in year-end statements.

Come January, it is potentially a different story - as we saw last year when the Federal Reserve hiked rates at its December meeting.

The chart below shows the December rally over the last 3 years, followed by a January sell-off:

However, given the spike of the recent advance, a rally into the end of the year may be more subdued from this point forward.

As I discussed in detail recently, the underlying technical underpinnings are pushing extremes on many levels and are more akin to market peaks than the beginning of new bull market advances.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Lance Roberts is a Chief Portfolio Strategist/Economist for Clarity Financial. He is also the host of "The Lance Roberts Show" and Chief Editor of the "Real Investment Advice" website and author of The "Real Investment Daily" blog and the "Real Investment Report". Follow Lance on Facebook, Twitter and Linked-In.

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