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Whatever Happened to the Santa Rally?

Since 1950, the New York Stock Exchange has risen by an average of 1.3% in the last five trading days of December, according to a Thomson Reuters analysis. This so-called “Santa Rally” is attributable to many factors – fund managers “window dressing” their year-end figures; extra liquidity entering the market as part of the year-end tidying up of portfolios; and retail investors buying for tax purposes. Whatever the cause, the Santa Rally has been a staple fixture of the markets for many years – until this year.

At the time of writing, the S&P 500 has lost almost 8% of its value in December; oil has seen a 10% fall in the last week; and investor sentiment is at a low ebb – 53% of money managers expect the global economy to shrink in 2019, according to a study by BAML. 

And this is no “seasonally-affected disorder”. Reuters calculations show that 2018 is the worst December for US equities since 1931 – the depths of the Great Depression. 

Of course, we have a few trading days remaining, and a sharp reversal is still possible, but the tectonic plates of global geopolitics appear to have aligned to cause a massive “risk-off” move as investors begin to fear the worst. In the US, the news flow is dominated by another Fed rate hike, and a looming trade war with China. In Europe, France is gripped by riots; Italy is breaking every EU budget rule; and the UK is convulsed by the chaos of Brexit. In Asia, a trade war would likely be far harsher on China’s neighbours than on China itself, which has caused a souring of opinion of Asian corporate and sovereign debt. 

Unexpected political developments have rattled markets: The arrest of a senior executive from Huawei, the Chinese telco giant, in Canada on US orders has resulted in tit-for-tat arrests of Canadians in China, and a furious response from the Chinese authorities. Meanwhile, elections in Mexico and Brazil have delivered more uncertainty than clarity. 

And in the GCC, it seems that the oil price-driven austerity of 2014-17 must return, as crude struggles to stay above $60 per barrel, and oil producers once again have to spend more on extraction than they receive on the open market for the commodity that makes up the lion’s share of their economies. 

But sometimes it pays to step back from the everyday noise, shift gears a bit and take a longer view. And this is where Investor Relations can be a soothing balm for anxious executives. 

The medium and long-term strategies of companies will outlast any US presidential term or interest rate cycle. The march of technology, and the response of companies to it, will be on Board agendas for a lot longer than any market swing. And if we’ve learned one thing since the financial crisis, it is that investor sentiment is both fragile and fickle, and can turn in an instant. 

Here are five tips for IR teams to manage panicking CEOs and Boardrooms when times are turbulent: 

  1. Keep your eye on the prize. Unless your company is undergoing a fundamental U-turn, your strategy is just as valid as it was when it was set. Remind the C-Suite of the strategy and the investor story.
  2. Keep talking to your shareholders. When volatility hits, it can be accelerated and amplified by lack of communication. Open, transparent and honest conversations are a great way to mitigate uncertainty.
  3. Quiz the finance team on the precise impact of any uncertainty on the top and bottom lines, and how they intend to explain it. Understand the market forces, and how they are responding to uncertainty. Then apply the investor story, and check it for validity. Chances are it remains strong.
  4. Put yourself in your investors’ shoes: What is their greatest concern? How is their portfolio behaving? What is their greatest fear in the current environment? It is likely that your own investor presentation and story can reassure them that your stock is a stable element in their investment portfolio.
  5. When uncertainty rises, being steadfast in the pursuit of business strategy is a differentiating factor. Business as usual can become a unique selling proposition in uncertain times. Try to use this counter-intuitive truth to inform and enhance your investor relations. 

The Santa Rally may have gone missing in 2019, but smart IR teams can still help to spread some Christmas cheer by doing what they do best. 

Happy holidays to all our readers, and a profitable new year.