One of the great myths with investment markets is the so- called fact of post-Christmas rallies. In the past five years, the FTSE 100 has only risen in January twice, hardly a convincing statistic.
A feature of the stock market that is perhaps more relevant is what has now become known as the Santa rally. On the assumption that Rudolph & Co set off at the end of November, Santa has witnessed the market rise in December in four of the past five years. The occasion that it didn't preceded the end of the new millennium bear market in March 2003, and the subsequent bull market.
For those who believe the merits of charting theory, the FTSE at 5500 provides a significant resistance level. The idea is that if this level is broken, then the market could gain serious momentum to higher levels.
Santa must be a very wealthy man, to not only produce millions of presents each year, but also to finance an extensive logistics exercise every Christmas. We can assume, therefore, that he has been a long-term investor in equities.
While we cannot accurately predict Santa's age, we can say that be must have been an investor since 1945. If he had invested £100 in 1945, inflation would mean that the sum would need to grow to more than £2,500 to effectively not lose value.
A building society would have returned only £1,678. Investment in shares, but spending the dividends, would have returned about £7,000. Property over the period would have returned £10,000. The big returns, however, have been seen from investing in equities, but reinvesting the dividends, turning £100 into £99,610.
Every year, without fail, Christmas retail spend increases. Will it do so this year, though? The odds are that the trend will be broken for the first time.
Retailers are describing conditions as challenging, a euphemism for not making as much money as they did before. There is evidence that belts are being tightened and purse strings kept taut.
The housing market-fuelled credit boom of the past few years is now taking effect. With ever-increasing bills and disposable income eroded by tax creep, there is just not as much cash around to spend.
Research from Virgin Money claims that Britons are about to collectively spend about £13bn on their credit cards this Christmas, but it will take them 12 weeks to pay off the debt. Shoppers are likely to spend an average of £543 each on their credit cards over the festive season.
Gifts will be the biggest expense, with people spending an average of £215 each on presents and cards, followed by food and drink at £127. Socialising will account for a further £96, while £43 will go on travel, £35 on a new outfit and an average of £27 will be spent on a Christmas tree and decorations.
Tesco's results last Friday showed that it is continuing to gain further sales from more traditional retailers, but not at the pace of previous years. Even Tesco admitted, it was an intensely competitive market place.
As ever, there will be winners and losers in the retail market. The increase in broadband usage means that Internet shopping from a warm home has far more appeal than braving the wintry weather to shop on the high street.
* For investment advice contact Anthony Platts on 01642 608855.
- Ian Pluves is a director of Wise Speke. Views expressed are the author's own and are not necessarily held throughout the Brewin Dolphin Group. Wise Speke is a division of Brewin Dolphin Securities Ltd, a member of the London Stock Exhange, authorised and regulated by the Financial Services Authority. Prices, values or income may fall against investor's interests. You should therefore be aware that you may get less back than you invested. Investments may not always be suitable for all individuals. If you have any doubts, you should consut a professional advisor.
Published: 29/11/2005
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