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'Santa rally' sends shares higher ahead of Christmas break

By Dan Atkinson

London stocks were caught up in a worldwide festive surge in share prices

Market experts love to argue about its causes or even if it exists at all, but ordinary traders and investors have little doubt that the “Santa rally” is a reality.

It has certainly worked its magic this year, with prices generally higher from Tokyo to Wall Street. n London this morning, the blue-chip FTSE 100 index closed early, at 12.30pm, for Christmas Eve, up from 7,623.59 to 7,632.24.

One month ago, on November 25, it stood at 7,396.29, but its progress since then has not been smooth. It tumbled to a recent low point of 7,137.85 on December 3 before taking off once more.It was a similar pattern on Wall Street, where the Dow Jones index stood at 28,066.47 on November 25 sliding to 27,502.81 on December 3 before staging a strong recovery.

Other indices, such as the Standard & Poor’s 500, Amsterdam’s AEX, the Cac 40 in Paris, Germany’s DAX, Spain’s IBEX and the Nikkei 225 in Japan showed a near-identical trading record during the last month.

Top risers in London today included Lloyds Banking Group, ITV, financial services group Standard Life Aberdeen, Antofagasta the mining company and Carnival, best known for its cruise liners. Less fortunate were those whose shares fell the most including telecom group BT, aerospace giant Rolls-Royce, Unilever, the consumer products company, United Utilities and the London Stock Exchange itself.

The most obvious explanation for the Santa Claus rally is that investors and traders are in a positive, holiday mood and are feeling naturally optimistic. Subsidiary rationales include the re-investing of end-year bonuses and the sort of book-squaring by financial institutions that can drive prices higher. Separate from the Santa Claus rally is the “January effect”, which also tends to see stock prices head higher. This has never been fully explained, other than by optimism about the New Year and a determination not to miss out on fresh opportunities.

Bitcoin also enjoyed a Christmas boost, with a market surge sending the price above $7,600 (£5,800 ,€6,800) for the first time since the start of December. At time of writing the coin had dropped to $7,377.

Gold prices headed for their highest gain in seven weeks, touching an intraday high at $1,496.90, before dropping down to $1,493.20.

Some purists object to both the Santa Claus rally and the January effect, believing prices reflect underlying market conditions and stock values. But seasonal impacts are noticeable, such as the tendency for shares to sell off during the autumn. Both the 1929 Wall Street Crash and Black Monday in 1987 took place at this time of year.

FURTHER READING New Year resolutions for FTSE bosses

FURTHER READING EU braces for post-Brexit shrinking feeling

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