Okay. We're a bit early with this one. Almost three months early, in fact. But as long-term investors, it pays to look ahead and position your portfolio of ASX shares accordingly.
What we're looking ahead to is Christmas 2020. Specifically, the three or so trading weeks before Christmas.
That's because in the runup to Christmas, ASX share prices have a tendency to rise. You may have heard this referred to as the Santa Claus rally.
Why do share prices often rise in the weeks before Christmas?
Good question.
We're told the phenomenon is driven by positive sentiment as people embrace the Christmas spirit. Or that our consumer-focused economies and share markets get a welcome boost from all the holiday shopping. Or that institutional investors move to settle their books before tuning out for a few weeks.
Most likely all three of these factors work together to have a positive impact on ASX share prices.
Not that there's any guarantee share prices will go up in December. But taking a look back at the past five years, the Santa Claus rally proved out on the All Ordinaries Index (ASX: XAO) 80% of the time.
Here are the rounded gains and losses for the All Ords in the three (or so) weeks before Christmas since 2015:
- 2015 gained 1%
- 2016 gained 3%
- 2017 gained 2%
- 2018 lost 1%
- 2019 gained 2%
There you have it. While the big man himself may not be real (don't tell the kiddies!) the rally named after him appears to have legs.
And 2020, if the stars align as hoped, could see a December rally that you'll be talking about for years to come.
How these 3 stars are aligning for a record Santa Claus share price rally
There's a lengthy list of factors I believe could see the All Ords gain 5% or more in December, with select shares enjoying far higher share price gains. In the interest of time (and word count) I'll stick to my top 3 factors today.
First, the politics in the world's biggest economy, in which its own share market moves have a massive influence on ASX share prices.
The United States presidential election takes place on 3 November. The divisive campaigning from both the Democrats and the Republicans is causing renewed jitters in investment markets. These jitters are likely to last for several weeks beyond the election date as both sides contest the outcomes of voting results in states that didn't go their way.
But by early December, that ruckus should thankfully be fading into history. And investors' pre-election jitters will calm once markets have certainty as to who will be in the White House for the next four years.
Both the other stars I believe will align to drive a record Santa Claus rally relate to COVID-19.
First, summer is coming Down Under. That means baking heat reducing the time the coronavirus can survive on outdoor surfaces subjected to the good old Aussie sun. It also means more open windows and more time spent outdoors, rather than indoors where the virus can spread more easily.
Now we know summertime alone won't spell the end of the pandemic, though it should help.
Second, the silver bullet to stop the pandemic is a vaccine. And on that front, US pharmaceutical giant Pfizer Inc. (NYSE: PFE) announced it's in advanced stages with an expanded trial, and could know whether its vaccine is effective by October.
Pending subsequent approval from the US Food and Drug Administration (FDA), Pfizer's CEO, Albert Bourla believes it's likely his company's vaccine will be rolled out in 2020.
In other words, just in time to fuel a record Santa Claus rally.
2 ASX shares that could see their share prices boom
If the stars align as outlined above, a lot of ASX shares should benefit. But of course, some will see their share prices gain far more than others.
One share that's already had a great year but could be in for more hefty gains is online retailer Kogan.com Ltd (ASX: KGN). The Kogan share price is down 17% from its 18 August all-time highs. Year to date, the share price is still up 155%, and, at the time of writing, it's up 2.5% in trading today. The shift to online shopping won't end overnight with the rollout of a vaccine. But if sentiment is running high, consumers may spend big this holiday season, which should be a boon for the Kogan share price.
Other shares to consider are those in the beaten down travel and leisure industries.
Macquarie has recommended several shares in these industries it believes will outperform during the recovery.
In the travel industry, the investment bank is tipping Sealink Travel Group Ltd (ASX: SLK). The Sealink share price has already managed to claw back the huge losses suffered during the pandemic panic selling earlier this year. Year to date, the share price is up 4.7%. But once travel restrictions are lifted, Sealink should benefit from its domestic operations.
These are just two ASX shares to keep a close eye on or add to your shareholdings today. If the Santa Claus rally kicks into high gear as hoped, a host of other ASX shares could rocket into Christmas.
