Dollar Bill: The Santa rally – real or imagined?

Bulls N’ Bears’ Dollar Bill was splayed out on the chesterfield at the Club holding high court when he heard an occasionally sensible bloke drain his glass and then offer an explanation on the ASX’s recent strength - and his expectation of more to come. With a straight face he said, “You can bet on the Santa Claus rally, particularly when Jupiter is in a favourable position.” Jupiter? Favourable position? Dollar Bill has heard of a few favourable positions before, but never in relation to planets.

Quickly pushing that to one side, Dollar Bill went about checking the charts and there it was in black and white - a Santa rally repeating over decades with very few exceptions. And, true to form the market has rallied yet again into the end of 2025 with the ASX-200 up a little more than 4 per cent since the end of November, which by any standards is a cracking one-month performance.

Of course Jupiter has nothing to do with it, but there is something going on – perhaps superstition creeping onto trading screens – because whichever way you cut it there is real historical support for the Santa market rally phenomenon that can’t be swept aside as a mere statistical variance.

It shouldn’t make sense, but numbers don’t lie. The Santa Claus rally has hit far more often than it has missed and far more than the law of averages says it should. In the US, the final five days of December and first two of January have posted positive returns roughly 75 per cent of the time during the past forty years. That’s not noise - that qualifies as seasonal law. And the average gain? Around 1.3 per cent in that single week. Whatever the cause – a planet in alignment or a fat bloke with a beard - clearly someone or something is running a remarkably disciplined quant shop around Xmas that Dollar Bill wouldn’t mind getting in on.

Even Yale University’s long-running Stock Market Confidence Index, which measures how convinced investors are the market will rise, shows a curious pattern: investor confidence spikes more often in December and early January than at any other time of year regardless of economic conditions. Robert Shiller, the Nobel laureate behind the survey, once described this as “calendar-driven optimism layered over anxiety”. Dollar Bill’s takeaway from this word salad? Clearly even the professionals can’t fully explain why markets behave better at the exact moment people stop behaving rationally.

Casting an eye closer to home, the numbers are even more compelling. At first glance the data may be something fund managers dismiss as coincidence — but if they bothered to actually count, it becomes irresistible. The ASX this year is set to post its 27th green December of the last 35 years. Clearly something happens in December and while there remains plenty of speculation as to why, it keeps happening with suspicious, and almost monotonous regularity.

And if that’s not enough to raise an eyebrow, the team at Bespoke Investment Group in New York, one of the most respected data shops on Wall Street, analysed nearly a century of returns showing December has posted positive returns more than 74 per cent of the time across major developed markets. Quite incredibly it’s the highest batting average of any month. It’s also the kind of rare statistic that makes both quants and fundamentalists shift uncomfortably in their seats.

These days every second finfluencer on TikTok is looking forward to the “end of year market strength” with breathless references to “seasonal energy shifts”.

Meanwhile, the Chicago Board Options Exchange’s own seasonality reports show something even stranger: options traders consistently price in lower implied volatility in late December, despite there being no fundamental reason for volatility to magically decline during the festive season. It’s almost as though the professionals who claim not to believe in Santa have quietly baked him into their models.

So here’s the uncomfortable truth: some of this nonsense appears to actually work. Not because Jupiter has anything to do with equities or any other market, but because human behaviour and history do. And ironically, charting human behaviour is also the basis of all technical analysis. Markets run on pattern-seeking and historically December is when those patterns hit overdrive.

Traders see signs in charts where no real fundamental support exists. And then, like a self-fulfilling prophecy, markets tend to start behaving as though these signs matter.

Behavioural-finance researchers like Terrance Odean, a professor of finance at UC Berkeley and Brad Barber, his longtime co-author, have produced some of the most seminal works on investor psychology. They have shown repeatedly that retail investors become more optimistic and more active in December and January, even when fundamentals look no different from November or any other month. Their studies link this to mood, new-year reset psychology and a widespread belief – alcohol infused or otherwise - that “things get better after Christmas”. If that’s not financial astrology or some other esoteric nonsense dressed in business attire, Dollar Bill doesn’t know what is.

The funny thing is, for all the scoffing at astrology and seasonal behaviour, markets have always been a magnet for people who swear they can decode the future from historical patterns with almost zero reference to underlying fundamentals. Entire careers have been built on drawing lines on charts with the kind of conviction usually reserved for religious scholars. Technical analysts insist the potential for every earnings downgrade, drilling miss, tariff shock or anything else that could impact a spreadsheet are already “priced in” by efficient markets providing a rationale for the belief that only the squiggles on charts can guide us. It’s a kind of financial hieroglyphics for the initiated.

The fundamental analysts that tend to congregate in the cigar bar at the Club, of course, dismiss all of this as not much more than witchcraft. These hardcore analysts prefer balance sheets, capex schedules and long-form reports written in fonts so small they require naval-grade optics. But even the most hardened fundamentalists tend to get a little twitchy in December. Again, it comes down to history, numbers and returns.

These are the same blokes by the way who spend eleven months of the year preaching discounted cashflows, but all of a sudden start muttering about seasonality, window-dressing and low-volume rallies as though reading tea leaves instead of term sheets now matters. And while these technocrats usually get mocked for their lack of focus on psychology and crowd behaviour, Dollar Bill knows they secretly all believe in it – particularly in December.

Traders look for patterns because patterns make chaos explainable. Algorithms hunt for them because someone told them to. And it’s precisely around Christmas time, when almost everyone - the quant, the boomer, the TikTok disciple - all start behaving like a pattern-seeking market missiles.

And curiously, these end-of-year rallies are most prominent when sentiment is at its gloomiest. Research from the American Association of Individual Investors points out that markets grind higher most often when bearish sentiment dominates. A Bank of America global fund-manager survey has produced similar results, showing cash allocations are generally well above long-term averages precisely when indices hit cyclical highs. And now this is repeating again, with global money-market funds swelling beyond US$6 trillion in cash - a record wall of funds demanding allocation in a rally nobody trusts but which keeps reaching higher.

Behavioural economists call this a “disbelief rally”. It’s the markets climbing what the old hands call a wall of worry. Traders mutter darkly about a pending pullback, a correction, inflation prints, bond yields and central-bank missteps - even recessions - but all the while ploughing more money in.

All of which leaves us with a slightly embarrassing truth: the more we study markets, the more they resemble a vast behavioural experiment disguised as rational finance.

And if all of this sounds like the exclusive domain of amateurs and eccentrics, again the history and the data both suggest otherwise. Some of Wall Street’s most decorated traders and analysts have openly flirted with ideas not far removed from what that chap at the club blurted out. W.D. Gann - a doyen of technical analysis and author of Gann Theory whose work is still gospel to modern technicians - actually built an empire using planetary cycles (I kid you not) and seasonal effects as reliable indicators for market trends.

Which raises the uncomfortable possibility that the line between a seasoned technician and your local clairvoyant is thinner than anyone wants to believe.

In the end, this may be the real lesson of the silly season. Markets are not driven by Jupiter, Mercury, tarot cards or moonlight. But they are driven by people who sometimes behave as though those things matter – and they almost always behave as they always have.

So as the year winds down and the screens glow a little greener, Dollar Bill will raise a glass to the technicians, the fundamentalists and even the would-be astrologers.

To the Santa rally, long may it live and here’s cheers to all, including the disbelievers.

Is your ASX-listed company doing something interesting? Contact: matt.birney@wanews.com.au