These are stories Report on Business is following Monday, Nov. 25, 2013.
Frost on the windshield, the first signs of snow and the inevitable question: Will we see a Santa rally?
London-based IG takes a look today at the origins of this late-year effect, and the history, and finds that it’s real.
“The short answer is – yes,” IG said in a study of the stock markets.
“We have looked at the past 10 years’ average performances of the FTSE 100 and the Dow Jones for the period between the end of November and the end of December, and there has clearly been a tendency for stock markets to have a positive finish to the year.
This year, of course, markets are rallying on the endless supply of cheap money as the world’s central banks keep their taps open, sending investors into riskier assets in search of higher yields, though North American stocks were mixed and generally not doing much of anything today.
The ongoing rally has raised questions about whether stock markets are bubbly, with 1999 still not too distant a memory.
The big question for investors is when the Federal Reserve will begin to “taper,” or cut back on its huge bond-buying program known as quantitative easing, or QE. And markets have bounced around on many Fed decisions, meeting minutes and pronouncements by central bank officials.
The Fed had been expected to unveil plans to taper at its September meeting. That didn’t happen – good news for investors, that – and then the guessing game started anew as to when.
So all eyes are on the next Fed meeting in December, the last of the year.
The S&P 500 and the Dow Jones industrial average are up sharply this year, having climbed more than 20 per cent, IG noted, with Germany’s DAX up by just about the same and London’s FTSE 100 up 12 per cent.
That aside, what IG found is that there’s some “disagreement” over the period of a Santa rally.
“It is believed to have first been coined in 1972 when it specifically described the performance of stock markets in the final five days of one yea and the first two days of the next,” IG said.
“However, since then it has evolved to more generally describe the end-of-year strength seen across stock markets.”
What accounts for this? There are several possible explanations.
“The most common is ‘window dressing’ by fund managers, who possibly buy into the stronger performing stocks that they missed out on for much of the year,” IG said.
“Another suggestion is that people buy ahead of yet another well-known maxim – the January effect,” it added.
“Shares historically have a strong January, so the Santa rally is sometimes explained away as people getting their money into the market in anticipation of this.”
IG wanted to know whether a look at the question of a Santa rally could help investors in the run-up to the end of this year.
“Since 2003, the FTSE has always ended December higher than at the close in November,” IG said.
“It is not as clear cut for the Dow, which has incurred three negative Decembers since 2003 – although these were all drops of less than 1 per cent.
Here’s what IG found for the period between Nov. 30 and Dec. 31 in each of the last 10 years:
- 2003, Dow up 6.9 per cent, FTSE up 3 per cent
- 2004, Dow up 3.4 per cent, FTSE up 2.3 per cent
- 2005, Dow down 0.8 per cent, FTSE up 3.6 per cent
- 2006, Dow up 1.98 per cent, FTSE up 2.8 per cent
- 2007, Dow down 0.8 per cent, FTSE up 0.37 per cent
- 2008, Dow down 0.6 per cent, FTSE up 3.4 per cent
- 2009, Dow up 0.81 per cent, FTSE up 4.27 per cent
- 2010, Dow up 5.18 per cent, FTSE up 6.7 per cent
- 2011, Dow up 1.42 per cent, FTSE up 1.2 per cent
- 2012, Dow up 0.6 per cent, FTSE up 0.52 per cent
The average is a gain of 1.81 per cent for New York, and 2.82 per cent for London.
As for this year, IG said there’s a “definite split in opinion.” Eight out of 10 of its clients with open positions on the DJIA expect to see the Dow fall, while 59 per cent project the FTSE will gain.
“An obvious explanation would be the relatively strong performance by the U.S. markets this year, which a proportion of clients clearly feel may soon run out of steam.”
Indeed, markets are on another high today after the weekend deal that would limit Iran’s nuclear plans.
- Follow our Inside the Market Blog (for subscribers)
- Analysts warn of stock market bubble threat
- Jacqueline Nelson's Market View video: For investors, signs are right for a Santa Claus rally
Oil prices sink
Oil prices fell today after Iran reached a deal with six world powers to halt its uranium enrichment program in exchange for the relaxation of sanctions that have pushed its oil-based economy into deep recession, The Globe and Mail's Eric Reguly reports.
Prices fell even though Iran’s oil exports are not expected to surge until a comprehensive deal is agreed with the Iranians that would allow it to rejoin the world trading system. Sanctions that have been in place, with varying degrees of severity, since the fall of the Shah in the 1979 Iranian Revolution. Until a broader deal happens, severe restrictions on oil exports, such as the ban on exports to the 28-country European Union, will remain in place.
“If both parties use this six-month period to make further progress in these talks, we should see further sanctions lifted next year which should further force oil prices lower,” said market analyst Craig Erlam of Alpari.
“Inflated oil prices have been a hot topic in recent years, with them having come at a time when household income has been basically frozen,” he added.
“Further reductions in the price should help ease the pressure on households, assuming that the Saudis don’t respond by reducing their supply, which has been increased in recent years in response to rising prices.”
Shakeup at BlackBerry
Several key players are leaving BlackBerry Ltd. amid an overhaul of the embattled smartphone maker.
Chief operating officer Kristian Tear and chief marketing officer Frank Boulben are departing, along with board member Roger Martin, the company said today.
At the same time, James Yersh is replacing Brian Bidulka as chief financial officer, who will remain as a “special adviser” to BlackBerry’s chief executive officer for the rest of the company’s fiscal year, The Globe and Mail’s Eric Atkins reports.
Mr. Martin has been on the board since 2007.
These are the first management moves since John Chen was named executive chair and interim CEO.
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Lions Gate tumbles
The sequel to the wildly popular Hunger Games turned in a stellar weekend performance, just not stellar enough for shareholders of distributor Lions Gate Entertainment Corp.
Lions Gate shares tumbled today as the $161.1-million (U.S.) in U.S. and Canadian weekend sales for The Hunger Games: Catching Fire was below what analysts had expected.
The stock lost about 10.5 per cent today.
The sequel starring Jennifer Lawrence as Katniss Everdeen topped the first movie in the series, but not by that much. Around the world, however, it far surpassed the original, with box office receipts of almost $147-million.
In Britain, it marked the best showing ever for Lions Gate.
“When you have an estimate that sets the expectation level at $180-million and the movie actually comes in at $160-million, despite the fact that is a very significantly large number, there could be some disappointment, analyst Marla Backer of Ascendiant Capital Markets told the Reuters news agency, referring to the North American opening.
Its latest quarter results illustrate all too well just what the Hunger Games franchise means to Lions Gate.
Earlier this month, the distributor posted a 29-per-cent plunge in second-quarter revenue as it came off the home entertainment release of Hunger Games a year earlier.
“We’re on track for another very good year and, with the worldwide launch of the next instalment of our Hunger Games franchise on Nov. 22, the ongoing diversification of our television business and a strong and growing presence on digital platforms, we are positioned to deliver growth for many years to come,” chief executive officer Jon Feltheimer said at the time.
- Catching Fire breaks box-office record with $161.1-million opening
- Geoff Pevere: The Hunger Games: Catching Fire may be one of the best sequels of all time
Wal-Mart taps new chief
Wal-Mart Stores Inc. is also changing the players at the top.
The world’s biggest retailer said today that Doug McMillon will take over as chief executive officer from Mike Duke at the beginning of February.
Mr. McMillon, 47, now runs the retailer's international business, and has held several senior positions at the company.
Mr. Duke will remain chairman of the board executive committee, and will advise Mr. McMillon for one year.
“This leadership change comes at a time of strength and growth at Wal-Mart,” said chairman Rob Walton. The company has the right strategy to serve the changing customer around the world, and Doug has been actively involved in this process.”
What does corporate governance look like in Canada? As regulators and investors around the world target long-serving boards, seeking fresh blood, read Janet McFarland’s annual Board Games report.
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- Updated November 27 1:00 PM EST. Delayed by at least 15 minutes.