The S&P Dow Jones Indices company has confirmed that Santa truly does deliver internationally. Academic studies have long found the same seasonal patterns that exist in the US also exist in most of the major stock markets globally with one exception sometimes noted — Japan. But it seems that Santa truly visits all nations during the month of December including Japan. Tim Edwards, Director of Index Investment Strategy at S&P Dow Jones Indices has confirmed this recently when he developed a simple ratio comparing the percent of December’s returns in each market to the total annual return. The analysis is familiar to our own our The Santa Rally Guide but with an international take, so we were happy to see other sources highlight the market’s holiday tendency. It also confirmed that the small and mid-cap US stocks had stronger seasonal tendencies than the larger S&P 500 companies.
A Santa Score of 0.08 would equal 1/12th of the annual return, so any number higher indicates an average return higher return than an average month. While the S&P500 came in last, its December return was double an average expected return. I would not get too excited about Japan’s high ratio since its Annualized Total Return during this timeframe was so low…but consider that this means the rest of the year had a negative return during the timeframe examined. As a matter of fact, this table shows on average being invested globally only in December would have captured a quarter to a third of the annual returns. US small and mid cap stocks had the second and third highest December returns and you can obtain this combined portfolio with such funds as the Vanguard VXF ETF or with the S Fund for Federal Government Employee TSP accounts.
Furthermore, evidence shows that instead of the Santa Rally predicting the coming year’s performance as originally devised, that the first 11 months of the year can indicate how well the Santa Rally will perform (on average). Good years (on average) lead to better Santa Rallies. We have wondered about this and were considering culling out information on how the seasonal tendencies are effected by bull and bear markets. In other words, does tax loss selling at the end good and bad years affect the Turn-of-Year tendencies. We are now definitely putting this on our list of “To Study and Report” during the year for our members at TSP & Vanguard Smart Investor. Invest smart.