Will markets be treated to the traditional Santa rally?

Despite all the dire warnings that investors were about to be crushed by an artificial intelligence bubble, markets made it through November largely unscathed.

The S&P 500 ended the month roughly where it began, and with the traditionally volatile autumn period behind us, attention is now on December.

Historically, the final month of the year is positive for markets, with the S&P 500 rising three-quarters of the time. So, can we finally crack on with the seasonal Santa rally, or is it too early to let down our guard?

Today’s bull market has been running for years, given fresh legs by the excitement surrounding AI, but the longer it continues, the more anxious investors have become.

The big worry was that hyperscalers such as Meta Platforms, Microsoft, Amazon and Alphabet might struggle to generate a big enough return on the hundreds of billions of dollars they are ploughing into the technology every year.

Nerves were further rattled by the scale of AI cross-shareholdings, with Nvidia pumping $100 billion into its customer, ChatGPT-maker OpenAI, which had, in turn, funnelled tens of billions into high-flying chip rival AMD.

Surely something had to give? Autumn was choppy yet every dip brought out bargain seekers, who piled in and prices rallied. Nvidia’s strong results on October 19 helped.

Just when it looked like markets might crack in late November, the month closed with what Bloomberg labelled an “everything rally”, as shares, bonds, gold and commodities clawed back lost ground. Not quite “everything” though – Bitcoin still ended the month down 20 per cent.

Yet, investors might want to go easy with the seasonal cheer.