Investors Hope Santa Claus Rally Caps Profitable, Yet Volatile Year
The Santa Claus Rally was first coined by noted stock market analyst Yale Hirsch back in 1972. It was Hirsch who first noted the trend that the stock market tends to rise in the last five trading days in December through the first two trading days in January. Since then, this seven-day trading session continues to spur a sense of hope and Holiday tradition among the Wall Street investor community.
This year, investors are looking to the Santa Claus Rally to continue what’s been a successful, albeit highly volatile, year in the U.S. stock market. So far this year, the benchmark S&P 500 has gained 16.5%. The tech-heavy NASDAQ has gained even more (21.5%) while the Dow Jones Industrial Average (DJIA) is up 12.6%.
But 2025 got off to a rough start. Between mid-February and early April, the U.S. stock market was in severe decline. In this roughly two-month period, the S&P 500 fell 19%, the NASDAQ declined 24% while the DJIA fell 16%.
The sudden decline was triggered by President Trump’s tariff and trade disputes, many with some of America’s largest trading partners including China, Canada, Mexico and the European Union. Many on Wall Street quickly assumed a worst-case scenario for the U.S. economy. That these disputes, often fueled by harsh rhetoric, would cause a sharp decline in consumer and business spending, send inflation soaring and force the economy into recession.
By early April, however, Wall Street started to realize the economy was absorbing the tariff and trade disputes much better than originally expected. Inflation didn’t surge higher, consumer and business spending remained fairly robust while the economy started to reignite with solid growth. In response, Wall Street began driving the stock market to new record all-time highs.
Over the past several decades, the Santa Claus Rally has provided some interesting results. Since 1969, it has produced a gain 75% of the time – 42 gains vs. 14 losses – in the benchmark S&P 500 stock index. Within these 56 trading sessions, the S&P 500 has produced an average gain of 1.3%. The biggest loss was in 1999 when the Santa Claus Rally delivered a punishing loss of 4%. The biggest gain was in 2008 when Santa delivered a massive 7.4% seven-day gain. In 2024, Santa delivered a small decline, where the S&P 500 fell 31.6 points, or -0.5%.
Admittedly, one shouldn’t read too much into a seven-day trading span, which is just a tiny fraction of the roughly 253 trading days over the course of the year. Trading activity tends to be rather light during the last six weeks of the year. Many traders take time off during this stretch which includes Thanksgiving, Hanukkah, Christmas, New Year’s Eve and for some, Festivus. Traders also tend to lock-in their annual profits by the start of December, not wanting to risk their hard-fought gains – and performance bonus – in the final weeks of the year.
There’s no official rationale behind the historical stock market gains of the Santa Claus Rally. Perhaps it’s the general optimism that surrounds the holiday season. Others contend it’s a short-term conviction on the retail holiday shopping season, which is the 61 calendar days in November and December. The holiday shopping season is by far the biggest season for retailers. As consumer spending accounts for more than two-thirds of all U.S. economic growth, one could argue investors are hopeful the retail holiday shopping season could provide a spark to the economy and future gains in the stock market. Whatever the reason, the Santa Claus Rally often provides a welcome respite from the usual chaos of the stock market.
And to you, the readers, I wish you all a very joyous and Merry Christmas.
Mark M. Grywacheski, Investment Advisor
Quad Cities Investment Group is a Registered Investment Adviser.
This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Quad Cities Investment Group and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Quad Cities Investment Group unless a client service agreement is in place.