Christmas comes early

Santa rally unlikely after big two months

DECEMBER is historically the

best month of the year for shares, but a Santa Claus rally in 2022 appears unlikely.

Strong gains on the stock market since early October have left investors wondering how much higher Aussie shares can climb.

CommSec has analysed 70 years of growth in the All Ordinaries Index of 500 companies and found December’s average monthly gain is 2.1 per cent – triple the market’s overall monthly average of 0.7 per cent. CommSec chief economist Craig James said the socalled Santa Claus rally could reflect people heading into the biggest annual holiday period and their optimism heading into a new year.

However, in 2022 there was “a bit of a complication” as Australian shares had a strong October and November after a disastrous September when they were down 6.7 per cent, Mr James said. Livewire Markets spokesman Chris Conway said the strong rise on the ASX 200 from the October low was “nearly in a straight line”.

“It’s been a monster rally, and the question then becomes what’s left in the tank?” he said.

Shares climbed further this week amid good news on the inflation front in Australia and the US, but were unlikely to surge again as they had in the past two months, Mr Conway said. He said the market could grind higher “but there is a huge resistance point 250 points above where we currently sit”.

“The comment will probably be Santa came early this year.”

CommSec had previously forecast the All Ordinaries index to be 7100 points by the end of 2022 and the ASX 200 at 6900.

“Our forecasts have been realised early,” Mr James said.

“In September we wouldn’t have given much chance of the forecasts being realised. Now we are not far away from record highs.”

Mr James said people should not assume the past was a good gauge for the future, and there were no guarantees with any investment.

“There is no substitute for doing your analysis of individual companies, the broader domestic economy, global influences as well as trends in interest rates and exchange rates,” he said. “It all gets down to fundamentals.”

Investment bank Federated Hermes head of global equities Geir Lode said equity markets were indicating reasons for optimism although economic slumps were only just beginning.

“Though interest rate hikes seem to have achieved their goal of tempering inflation, we worry that higher borrowing costs and cost-of-living squeezes in major economies will lead to regional recessions in 2023,” he said. “This will limit corporate earnings growth, potentially dampening further gains in the equity markets.”