Will stock markets be full of festive cheer in December?

The final month of the calendar year usually gives investors plenty to cheer about. But we’re still in the midst of a pandemic and nothing is certain.

After a decent results reporting season in the US, one might have been forgiven for thinking the run up to Christmas would be a breeze. After all, history tells us this is a strong time of year for stock markets. And it would have been had we stopped the clock on Thursday evening. But we didn’t, and its now a completely different picture.

Having hit records highs just three weeks earlier, the three big American indices suffered single-day losses of at least 2.2%. Even the FTSE 100, a laggard since most global markets began their Covid recovery in late March 2020, and which had just hit its highest since February last year, lost 3.6% on Friday 26 November.

To blame was the emergence of a new Covid variant – Omicron. Governments in the west have stopped flights from the source region in southern Africa, but there is a sense of inevitability that the strain will spread. The fact that we know little about its possible impact is what upsets financial markets.

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Already in the UK, new measures are being introduced to try and manage it, and investors worry that further action could have a significant effect on an economy still recovering from multiple lockdowns. Like the beginning of the year, the pandemic is the story that will dominate the final weeks of 2021.

As at the close of play on Friday26 November, only three of the world’s main stock markets were in positive territory for November – the Nasdaq 100, Switzerland and Shanghai’s SSE Composite. However, plenty of stocks still boast huge gains for the month. In the US,Pfizer (NYSE:PFE), NVIDIA (NASDAQ:NVDA) and Ford (NYSE:F) were up 23.6%, 23.2% and 15.5% respectively. And here, Marks & Spencer (LSE:MKS) shares were up 29.7%, Royal Mail (LSE:RMG) had risen 20.2% and BT Group (LSE:BT.A) 10.9%.

What might happen in December

As we discussed a month ago, November is the start of the financial winter when stocks have, historically, done better than over the summer months. And it looked like being the case this year too, until the Omicron crash.

So, will stocks recover during December? Will there be a Sant a rally in 2021?

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Well, the odds certainly look good. Since 1984, the FTSE All Share has only fallen seven times in December, and its average return makes it one of the best months to own shares. Following a 3.9% loss in 2018, the index has risen by more than 3% in each of the past two years and posted gains in 15 of the past 18 years.

But that doesn’t mean it will be 16 out of 19 in 2021. Much will depend on progress of the new Covid variant and how governments react.