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The so-called Santa Rally in stock markets failed to deliver in December, when the FTSE 100 fell by 1.4% and America’s S&P 500 slid by 2.5%. However, such a soggy end to one year does not mean that the new year is guaranteed to lack cheer, at least if history is any guide.
Admittedly, there is no shortage of things about which investors can worry, since sticky inflation, an uncertain economic outlook and global geopolitical risk are running themes. And markets may just be starting to take more seriously the issue of mountainous (and growing) government debts.
But cautious sentiment can mean that expectations are low and valuations attractive (just as a cheery consensus can mean valuations are expensive, as good news is already priced in and more expected). So, who is to say that what looks, on paper, like a cheap currency, an undemanding earnings multiple and a plump dividend yield for the FTSE 100, will not tempt buyers and confound the doubters in 2025?
Since its inception in January 1984, the FTSE 100 has fallen just nine times in the month of December, which remains on average its single best month over the past 41 years. The ninth time was in 2024, so we’ll see what that means for 2025.
But on six of the preceding eight occasions, the benchmark index rose at a double-digit percentage clip in the following year – 1986, 1991, 1995, 2003, 2016 and 2019. The only exceptions when the festive season fell flat were 2022, when the FTSE 100 grubbed out a 3.8% capital gain in 2023, and 2014, which was followed by a modest 4.9% decline in the headline index in 2015.
| Year | December of that year | FTSE 100 in that year | FTSE 100 in next year |
|---|---|---|---|
| 1984 | 4.3% | 23.2% | 14.6% |
| 1985 | (1.8%) | 14.6% | 18.9% |
| 1986 | 2.6% | 18.9% | 2.0% |
| 1987 | 8.4% | 2.0% | 4.7% |
| 1988 | 0.0% | 4.7% | 35.1% |
| 1989 | 6.4% | 35.1% | (11.5%) |
| 1990 | (0.3%) | (11.5%) | 16.3% |
| 1991 | 3.0% | 16.3% | 14.2% |
| 1992 | 2.4% | 14.2% | 20.1% |
| 1993 | 7.9% | 20.1% | (10.3%) |
| 1994 | (0.5%) | (10.3%) | 20.3% |
| 1995 | 0.7% | 20.3% | 11.6% |
| 1996 | 1.5% | 11.6% | 24.7% |
| 1997 | 6.3% | 24.7% | 14.5% |
| 1998 | 2.4% | 14.5% | 17.8% |
| 1999 | 5.0% | 17.8% | (10.2%) |
| 2000 | 1.3% | (10.2%) | (16.2%) |
| 2001 | 0.3% | (16.2%) | (24.5%) |
| 2002 | (5.5%) | (24.5%) | 13.6% |
| 2003 | 3.1% | 13.6% | 7.5% |
| 2004 | 2.4% | 7.5% | 16.7% |
| 2005 | 3.6% | 16.7% | 10.7% |
| 2006 | 2.8% | 10.7% | 3.8% |
| 2007 | 0.4% | 3.8% | (31.3%) |
| 2008 | 3.4% | (31.3%) | 22.1% |
| 2009 | 4.3% | 22.1% | 9.0% |
| 2010 | 6.7% | 9.0% | (5.6%) |
| 2011 | 1.2% | (5.6%) | 5.8% |
| 2012 | 0.5% | 5.8% | 14.4% |
| 2013 | 1.5% | 14.4% | (2.7%) |
| 2014 | (2.3%) | (2.7%) | (4.9%) |
| 2015 | (1.8%) | (4.9%) | 14.4% |
| 2016 | 5.3% | 14.4% | 7.6% |
| 2017 | 4.9% | 7.6% | (12.5%) |
| 2018 | (3.6%) | (12.5%) | 12.1% |
| 2019 | 2.7% | 12.1% | (16.9%) |
| 2020 | 3.1% | (16.9%) | 17.8% |
| 2021 | 4.6% | 17.8% | 0.9% |
| 2022 | (1.6%) | 0.9% | 3.8% |
| 2023 | 3.7% | 3.8% | 5.7% |
| 2024 | (1.4%) | 5.7% | ??? |
Source: LSEG Refinitiv data
The S&P 500 index seems similarly adept at shaking off any Christmas indigestion. Looking at the US benchmark since the launch of the FTSE 100, the same 41-year time span reveals that Santa has failed to deliver a festive surge on just nine occasions, the same as in the UK. Again, December 2024 was the ninth time.
The S&P 500 rose in the following year on six of the prior eight occasions, with the index offering double-digit percentage gains in four instances, including 2023’s belting 24.2% advance. The only exceptions were 2007, which was followed by the zenith of the Great Financial Crisis in 2008, and 2014, when US equities trod water thanks to a mid-cycle economic growth scare in the following year.
| Year | December of that year | S&P 500 in that year | S&P 500 in next year |
|---|---|---|---|
| 1984 | 2.2% | 1.4% | 26.3% |
| 1985 | 4.5% | 26.3% | 14.6% |
| 1986 | (2.8%) | 14.6% | 2.0% |
| 1987 | 7.3% | 2.0% | 12.4% |
| 1988 | 1.5% | 12.4% | 27.3% |
| 1989 | 2.1% | 27.3% | (6.6%) |
| 1990 | 2.5% | (6.6%) | 26.3% |
| 1991 | 11.2% | 26.3% | 4.5% |
| 1992 | 1.0% | 4.5% | 7.1% |
| 1993 | 1.0% | 7.1% | (1.5%) |
| 1994 | 1.2% | (1.5%) | 34.1% |
| 1995 | 1.7% | 34.1% | 20.3% |
| 1996 | (2.2%) | 20.3% | 31.0% |
| 1997 | 1.6% | 31.0% | 26.7% |
| 1998 | 5.6% | 26.7% | 19.5% |
| 1999 | 5.8% | 19.5% | (10.1%) |
| 2000 | 0.4% | (10.1%) | (13.0%) |
| 2001 | 0.8% | (13.0%) | (23.4%) |
| 2002 | (6.0%) | (23.4%) | 26.4% |
| 2003 | 5.1% | 26.4% | 9.0% |
| 2004 | 3.2% | 9.0% | 3.0% |
| 2005 | (0.1%) | 3.0% | 13.6% |
| 2006 | 1.3% | 13.6% | 3.5% |
| 2007 | (0.9%) | 3.5% | (38.5%) |
| 2008 | 0.8% | (38.5%) | 23.5% |
| 2009 | 1.8% | 23.5% | 12.8% |
| 2010 | 6.5% | 12.8% | (0.0%) |
| 2011 | 0.9% | (0.0%) | 13.4% |
| 2012 | 0.7% | 13.4% | 29.6% |
| 2013 | 2.4% | 29.6% | 11.4% |
| 2014 | (0.4%) | 11.4% | (0.7%) |
| 2015 | (1.8%) | (0.7%) | 9.5% |
| 2016 | 1.8% | 9.5% | 19.4% |
| 2017 | 1.0% | 19.4% | (6.2%) |
| 2018 | (9.2%) | (6.2%) | 28.9% |
| 2019 | 2.9% | 28.9% | 16.3% |
| 2020 | 3.7% | 16.3% | 26.9% |
| 2021 | 4.4% | 26.9% | (19.4%) |
| 2022 | (5.9%) | (19.4%) | 24.2% |
| 2023 | 4.4% | 24.2% | 23.3% |
| 2024 | (2.5%) | 23.3% | ??? |
Source: LSEG Refinitiv data
The UK may be suffering from a bout of the jitters, but no such gloom afflicts sentiment in the US. Quite the opposite holds true, which is perhaps to be expected after two consecutive years of 20%-plus gains in the S&P 500, since mood tends to follow price.
Intriguingly, the S&P has only managed back-to-back advances of more than 20% on five occasions since 1900 and 2023-24 was the fifth.
The good news for bulls is that consecutive gains of a fifth or more in each of 1995 and 1996 were followed by three more belting years in 1997, 1998 and 1999 as the mania for technology, media and telecoms (TMT) stocks hit top gear. The smash only came in 2000 and the subsequent bear market then lasted three years, as a big chunk of the gains made on the way up were then erased.
Less encouragingly, the surge of 1927 and 1928 took investors face first into 1929’s Wall Street Crash and four straight down years. The rally of 1935 and 1936 was followed by a brutal down year in 1937.
And the two 20%-plus gains of 1954 and 1955 were followed by a flaccid 1956 and a torpid 1957. As such, it might not be entirely wise to assume that 2025 will add to the current storming bull run, especially as valuation metrics such as the Shiller cyclically adjusted price earnings (CAPE) ratio, market capitalisation to GDP, market capitalisation to corporate gross value added (GVA) and price-to-book ratio all look lofty by historic standards.
Equally, bulls will look to the experience of the 1990s for comfort, especially given how the current enthusiasm for AI-related stocks mirrors the TMT boom of 30 years ago and how the US Federal Reserve’s track record since then is one of providing cheap liquidity as and when markets need it in times of trouble.
Written by:
Russ Mould
Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
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