The stock market is entering its prime time, and all eyes are on the so-called Santa Claus Rally—a period that has historically brought cheer to traders. This seasonal trend covers the last five trading days of December and the first two of January. Investors are optimistic that this momentum will carry into 2025, as history shows this stretch is often a bright spot in the calendar.
What Is the Santa Claus Rally?
Dating back to 1950, the Santa Claus Rally has been a reliable source of gains for the S&P 500, averaging a 1.30% increase during these seven days, according to LPL Financial. For context, a typical seven-day stretch sees only a 0.3% rise. This trend isn’t just a fluke—historically, the Santa Rally period ends positively about 78.4% of the time, making it one of the most consistent streaks for gains in the market.
Ryan Detrick, chief market strategist for Carson Investment Research, points out, “No other seven-day period is likely to be higher.”
December: A Historically Positive Month
December has long been a standout month for the S&P 500. Over the past century, it has been the most likely month to close in the green. According to Bank of America, December ends on a high note roughly three out of four times.
For election years, the odds are even better. The S&P 500 has finished higher 83% of the time during December in such years. BofA analysts highlight that much of this gain stems from the Santa Rally itself.
“This late-December strength tends to carry over into the next year, with the [S&P 500] up 63% of the time on an average return of 0.72% (1.12% median) during the first ten days of January,” BofA analysts noted in a recent report.
Skipping 2023 but Looking Ahead
While the Santa Claus Rally didn’t show up in 2023, history suggests this absence is an anomaly. Over the past 75 years, back-to-back losing years during this period have only occurred twice. This resilience underlines why investors keep a close eye on this phenomenon.
Tuesday, marking Christmas Eve, officially kicked off the seasonal indicator. And with just one day accounted for, the S&P 500 has already secured its third-best annual performance in two decades.
What’s Next for the Santa Rally?
If history repeats itself, the S&P 500 could climb further before the year ends. Detrick and others are optimistic that Santa might push the index into the top-performing slot for the year.
For investors, this is a time to watch the markets closely. The combination of seasonal trends and historical data creates a compelling case for year-end optimism. Whether Santa delivers this year or not, the momentum from this period could set the tone for early 2025.
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