This seasonal market pop is considered one of Wall Street’s more beloved holiday patterns.
- Santa Rally is a market phenomenon observed during the last five trading days of December and the first two of January.
- Past trends show an underwhelming Santa Rally in recent years, though gains over the entire month of December have been strong.
- Third-quarter earnings have led to sharp stock moves, creating new trading opportunities.
This year has been a complicated one for markets, and investors are doubting whether the proverbial “Santa Rally” will arrive in time to infuse much-needed holiday cheer.
President Donald Trump took office in January and launched his global markets-upsetting, ever-shifting tariff blitz. Markets are still reeling from its impact, even as corporate finance teams pencil in the hit.
The year also saw the artificial intelligence (AI) technology and the tech firms associated with it – Nvidia, Alphabet, and OpenAI – scale to new heights. China also made big gains, turning heads with DeekSeek’s low-cost AI models and Alibaba’s rapid AI iterations and huge capex commitments, which nearly doubled its stock.
Meanwhile, the U.S. economy is still under strain amid high inflation, weak consumer spending, immigration issues, and corporate job losses. And, top investment advisors are forecasting a 25-basis-point cut in interest rates at the Federal Reserve’s meeting next week, which would be the third cut this year, and holiday sales for retailers are expected to be strong.
The S&P 500 index is heading for its weakest gains in three years. Gold prices are through the roof, and Bitcoin is in the red.
What Is The Santa Rally?
So, what are the expectations for December? First up, the “Santa Rally” is a stock market phenomenon, referring to the historical tendency for stock prices to rise significantly during the final five trading days of December and the first two of January.
There are few fundamental reasons for a rally during this stretch — most corporate staff are on holiday — yet a blend of holiday optimism, year-end bonuses, and the ending of the tax year often creates the perfect cocktail for unexpected market moves.
In any case, investors watch and trade on it.
Past Trends
However, trends show that the Santa Rally has been underwhelming in the past few years. In fact, there’s been a decline in the Dec ‘22-Jan ‘23 and Dec ‘23-Jan ‘24 periods.
As such, it might make sense to look at December as a whole. The market gained in the month in each of the last five years, suggesting a similar move this time around.
Notably, the third-quarter earnings season has sparked sharp stock moves, and as the reporting cycle wraps up, some names now look like newfound bargains while others appear stretched.
As investors trade over the holidays, they might find the charts below handy.
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