Expect the annual Santa Claus rally this week. And if it doesn’t arrive, that will increase feelings of uncertainty on Wall Street as we begin 2025.
The Santa Claus rally typically occurs during the last week of December and the first two trading days of January. Since 1950, this seven-day period has shown higher stock prices about 79% of the time with the Standard & Poor’s 500 up an average of 1.3% to 1.4% during this period. In the 2022-2023 Santa Claus rally, the S&P 500 rose by 0.8%.
Several factors might explain the Santa Claus rally.
Low Trading Volume: With many institutional investors on vacation, retail investors may have a greater influence on the market..
Year-End Bonuses: The influx of holiday bonuses may lead to increased investment activity.
Portfolio Rebalancing: Fund managers might buy the year’s winners to improve year-end performance figures.
this year I’d also add the influence of the december sell off in stocks. With prices lower than they were, investors might decide to buy on the dip for a short-term gain.
But there’s a downside risk to the Santa Claus rally too. If the rally doesn’t arrive as expected, it can start the year on a negative note. As Yale Hirsch, who coined the term in 1972, put it: “If Santa Claus should fail to call, bears may come to Broad and Wall.”
