Interactive Investor

An outlook for shares in January 2022 after December boom

30th December 2021 09:03

Lee Wild from interactive investor

Most investors have done well in the past month as a Santa rally materialised. Here, we look at what might happen to share prices at the beginning of the new year.

A month ago, I said that the odds of a Santa rally and stock market gains in December “certainly look good”. Well, optimistic investors who bet on it will be sitting on significant profits today after what is, with just one-and-a-half trading sessions to go, one of the biggest December rallies of the past 20 years.

At the close of business on 29 December, the FTSE 100 index was up 361 points, or 5.1%, for the month at a 22-month high. The FTSE All-Share index had risen 4.9%. Despite the dramatic rise in cases of the new Omicron Covid variant, hospitalisations have been significantly less than in previous surges, and financial markets have shrugged off concerns about its impact. The Bank of England’s surprise decision to raise interest rates for the first time in over three years also failed to knock sentiment.  

December’s winning FTSE 100 stocks included US-focused plumber Ferguson (LSE:FERG), up almost 16% in one month, housebuilders Berkeley Group (LSE:BKG) and Taylor Wimpey (LSE:TW.), and British Airways owner International Consolidated Airlines (LSE:IAG). Shares helping the FTSE All-Share make it 16 out of 19 positive December’s included On the Beach (LSE:OTB), the travel company up 34.9% as it recovered from a savage sell-off. Domino’s Pizza (LSE:DOM), Stagecoach (LSE:SGC) and Card Factory (LSE:CARD) were also up more than 20%.

It was a similar story in the US where the Dow Jones soared by 5.8%, the broader S&P 500 rose a little less than 5% and the tech-focused Nasdaq Composite a less impressive 1.5%. Jobs numbers and consumer spending data have been positive, and falling gas and oil stockpiles imply that the US economy continues to grow.

Will markets start 2022 with a bang?

After all the fun and festivities of the Christmas and New Year period, January can seem very wintry and miserable. It can be the same for share prices, especially with December 2021 having been such a positive one for investors. 

Global stock markets had better start 2022 with a bang if they are to avoid a post-Christmas depression. But history tells us not to expect much from January, and record numbers of Covid cases over Christmas have raised concerns about a fresh surge of hospitalisations in the UK over the next few weeks. 

As the UK Stock Market Almanac points out, January once had a reputation as one of the best months of the year for shares. Indeed, between 1984 and 1999, the average FTSE All-Share return in the month was 3.3%, and the market only fell twice in January in those 16 years. 

But things changed at the turn of the century. Since 2000, the average return for January is negative and the FTSE All-Share has fallen in 15 of the past 22 January’s.

There’s an old stock market adage that reads - “as January goes, so goes the year”. Studies in America had demonstrated some truth to the saying, although the correlation has broken down in recent years. Whatever the trend, it’ll be nice to get the year off to a winning start. 

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