December is the best month for the FTSE 100 and UK shares!
With 28 days remaining of 2025, the FTSE 100 seems set for an excellent year, yet 2026 might be another story!
Playing Footsie
The FTSE 100 launched in January 1984 with an initial value of 1,000 points. As I write, it stands at 9,711.79 — up 871.2% in nearly 42 years.
This gain translates into a compound growth of about 5.3% a year (way below returns from the US S&P 500 index). However, UK shares deliver higher cash dividends. Today, the Footsie’s dividend yield is nearly 3.2% a year, but has been way higher during market meltdowns.
Santa loves stocks
One interesting phenomenon in UK (and other) stocks is that returns vary widely by month. Historically, the FTSE’s worst two months have been June and September, perhaps due to reduced trading and liquidity around the summer months?
Historically, December has produced the FTSE 100’s highest average monthly return. This trend is called the ‘Santa rally’, but a good December does not guarantee strong gains the next year. Likewise, a poor end to one year does not mean the stock market will be a turkey the following year.
On average, the Footsie’s December gain is 2.1%. Historically, only April and July have risen by over 1%. Thus, December stands out as the best month for UK shares by miles.
Why is this? Perhaps the joyful holiday season makes investors more upbeat and willing to buy stocks? Another theory is that fund managers buy more shares in December, ready for the next year.
However, another trend known as the ‘January effect’ has broke down. “As goes January, so goes the year” claims one City saying. But the FTSE 100 has fallen 15 times and risen only 10 times since 2000, so this prediction is less reliable.
Additionally, a good December for stocks is an unreliable indicator for the coming year. Of the Footsie’s 11 yearly losses since launch, 10 came after a December gain in the previous year. Furthermore, some of the best Decembers have preceded hefty market crashes in the following year.
A share for all seasons?
As a value and dividend investor, I like owning solid, steady companies. For instance, my family portfolio owns Unilever (LSE: ULVR) for its defensive qualities as a big, beautiful British business. Founded in 1929, this Anglo-Dutch corporation is one of the world’s leading suppliers of fast-moving consumer goods.
Over decades, Unilever has increased its sales, profits, and shareholder dividends. In 2024, Unileverâs turnover was â¬60.8bn across 190 countries. This group’s five divisions are Beauty & Wellbeing, Personal Care, Home Care, Foods, and Ice Cream (up for sale). 3.4bn of the worldâs 8bn people use Unilever products each day. Wow.
As I write, this stock stands at 4,574p, valuing this FTSE firm at £112.3bn. Down 3.6% over the past year, the sliding share price has boosted the dividend yield to 3.4% a year. Though this business is too big to skyrocket, it has also survived some of history’s worst economic collapses.
Of course, the next recession or market meltdown could hit Unilever hard. In really tough times, its revenues, profits, and cash flow have shrunk. Still, I expect folk to keep buying Dove soap, Magnum ice cream, and Persil laundry detergent.
Then again, there are far more exciting stocks to buy right now…
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The Motley Fool UK has recommended Unilever. Cliff DâArcy has an economic interest in Unilever shares. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services, such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a diverse range of insights makes us better investors.
