It was a comment overheard in a club that would make any seasoned market watcher pause. Amid discussions of the ASX's recent strength, one punter offered a celestial explanation: "You can bet on the Santa Claus rally, particularly when Jupiter is in a favourable position." For Dollar Bill, a regular commentator in The West Australian's Bulls N' Bears column, it was a fanciful notion. Yet, when he checked the charts, the evidence was undeniable.
The Unignorable Data Behind the December Surge
True to its historical pattern, the Australian share market has rallied into the close of 2025. The ASX-200 has gained a little more than 4 per cent since the end of November, a cracking one-month performance by any measure. This is no isolated event. A deep dive into the numbers reveals a compelling, long-term trend that fund managers can't easily dismiss.
Globally, the statistics are startling. In the United States, the final five trading days of December and the first two of January have posted positive returns roughly 75 per cent of the time over the past forty years. The average gain in that single week is around 1.3 per cent. Closer to home, the data is even more persuasive for Australian investors. The ASX is on track to post its 27th positive December in the last 35 years.
Analysis from the Bespoke Investment Group in New York, a highly respected data firm, examined nearly a century of returns. It found December has posted positive returns more than 74 per cent of the time across major developed markets, giving it the highest 'batting average' of any month. This isn't a minor statistical blip; it's a seasonal pattern with formidable historical support.
The Psychology of Festive Season Optimism
So, what's really driving this phenomenon if not the planets? The answer appears to lie in human psychology, not astronomy. Yale University's long-running Stock Market Confidence Index shows a curious pattern: investor confidence consistently spikes in December and early January, often regardless of the underlying economic conditions.
Nobel laureate Robert Shiller, who oversees the survey, once described this as "calendar-driven optimism layered over anxiety." Behavioural finance researchers like Terrance Odean from UC Berkeley and his colleague Brad Barber have shown that retail investors become more optimistic and active during this period. This shift is linked to mood, new-year reset psychology, and a widespread, sometimes alcohol-infused, belief that "things get better after Christmas."
This collective optimism becomes a self-fulfilling prophecy. Traders and algorithms alike hunt for patterns, and December provides a powerful, recurring one. The Chicago Board Options Exchange's seasonality reports add another layer, showing that options traders consistently price in lower implied volatility in late December, despite no fundamental reason for calm. It's as if the market has quietly baked Santa into its models.
When Disbelief Fuels the Rally
Ironically, these end-of-year rallies often shine brightest when broader market sentiment is at its gloomiest. Research indicates markets frequently grind higher when bearish sentiment dominates. Behavioural economists call this a "disbelief rally"—markets climbing a 'wall of worry.'
Currently, this pattern is repeating. Global money-market funds are swollen with a record wall of cash exceeding US$6 trillion, waiting for allocation. Traders may mutter about pending pullbacks, inflation, or recessions, yet capital continues to flow in, pushing indices to new cyclical highs in a rally that few fully trust but everyone watches.
The line between seasoned technical analysis and what some might call superstition is intriguingly thin. Legendary technician W.D. Gann, whose work remains gospel to many modern chartists, built an empire using planetary cycles and seasonal effects as market indicators. It raises an uncomfortable question for the fundamental analysts who prefer balance sheets and cashflow models: when the numbers work, does the reason matter?
In the end, the real lesson of the silly season might be this: markets are not driven by Jupiter, Mercury, or tarot cards. They are driven by people—people who, for a few weeks each year, behave with a predictable, pattern-seeking optimism that leaves a clear mark on the charts. As the year winds down and trading screens glow a little greener, the Santa rally, for all its mysterious origins, remains a fixture of the financial calendar. Long may it live.
