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In markets, when there are very light trading volumes as we often see in the final ten days of December, we can experience exaggerated price changes. We’ve seen this play out in the last few days and it has resulted in a wild ride in markets, with a distinct lack of pre-Christmas cheer.

The US equity market lost 7% in the pre-Christmas week (17th to 21st December) and then a further 2.7% on 24th December. This is the worst performance on a Christmas Eve in the history of the US market (since 1928). The Japanese market, which is closed on 24th December to mark the Japanese Emperor’s birthday, fell by 4.9% on Christmas Day – the worst on record (back to 1949).

Between 1st and 25th of December this year, the US stock market (S&P 500) has fallen by 14.7%; in the worst month of the financial crisis (October 2008) the S&P fell 16.9%. Japan has also lost 14.3%. The UK market (FTSE All-Share) has actually outperformed compared to other markets, despite Brexit woes, and is down by 4.6% in December (although down 13.6% in 2018).

The latest list of news that has hit investor sentiment is largely focused on President Trump’s actions: partially shutting down the US Government to force Congress to fund his bn wall between the US and Mexico; suggesting he might fire the chairman of the Federal Reserve for raising interest rates too fast and fears of increased trade tensions with China.

On a more fundamental basis, economic and companies’ news has been positive on the whole. Mastercard reported that US consumer spending increased by 5.1% over the Christmas period compared to last year – the fastest reported growth in six years.

Betting against further falls in the US market has been somewhat of a one-way bet in recent weeks. It is notable that the US market experiences the worst losses in the afternoon after European markets have closed.But with investor positioning extremely negative – the cost of protecting against a 10% fall in S&P, which tends to be a contrarian indicator, is the highest since 2009 – there is the potential for an exaggerated rebound in markets. We saw something of this rebound on Boxing Day, when the US market jumped 5%, the largest one day gain since 2008. This is not to say that this will continue through the week and into the New Year, but for speculators betting against global stock markets, it is no longer a one-way bet.

For long-term investors, while short-term market volatility can be unsettling and no one likes to see their portfolio go down in value, the best thing to do is to stick with your long-term investment goals and go back to enjoying the Christmas break…


All data, unless otherwise stated, is sourced from Marcobond and Bloomberg.

Risk warning

As with all investing, your capital is at risk. The value of your portfolio with Nutmeg can go down as well as up and you may get back less than you invest. Past or future performance indicators are not a reliable indicator of future performance.