2025-12-22 07:57:00
If you ask around, most people would’ve heard the term Santa Claus rally in markets. There’s always that feeling that stocks will perform better as we get towards the end of the year.
Call it the Santa Claus rally, call it window dressing, call it whatever you want. However, most investors tend to have a positive bias during the festive period it would seem. But is it really a thing though? Or is it just some unconscious bias that one develops over the years?
Well, let’s try and debunk that myth – if it is one. The best way is to take a more seasonal approach of course. As such, let’s take a look at how the S&P 500 has fared over the past two decades during Christmas week.
Here’s a summary of the performance by the index during the festive week:
- 2024: +0.7%
- 2023: +0.3%
- 2022: -0.1%
- 2021: +2.3%
- 2020: -0.2%
- 2019: +0.6%
- 2018: +2.9%
- 2017: -0.4%
- 2016: -1.1%
- 2015: +2.8%
- 2014: +0.9%
- 2013: +1.3%
- 2012: -1.9%
- 2011: +3.7%
- 2010: +1.0%
- 2009: +2.2%
- 2008: -1.7%
- 2007: -0.4%
- 2006: +0.5%
- 2005: +0.1%
The average weekly performance as such is +0.65% during Christmas week. So, there is some credence at least to the supposed Santa Claus rally.
But just like everything else, correlation doesn’t always mean causation. And I would caution anyone who thinks that as long as we’re in Christmas week, stocks are bound to gain more often than not.
In fact, the period between Christmas and New Year is also a rather interesting one. If you factor that into the picture, the S&P 500 actually posted its first loss during the interim period between both holidays for the first time in seven years in 2024.
And even when you look at Christmas week itself above, consecutive yearly losses are a relatively rare occurrence.
Still, it doesn’t mean that we’re due a hot streak just because. Think about the hot hands fallacy if you must.
As the Fed delivers a seemingly more hawkish rate cut this month, that has tempered with some of the recent market optimism. But all in all, stocks are still holding up relatively well; that despite concerns surrounding the AI bubble as well.
The S&P 500 is still poised for roughly 16% gains this year and that for me is the bigger takeaway. Whatever the Santa Claus rally stands for this year, it won’t mean much in that context.
So yes, there is historically and seasonally a pattern of gains for stocks during the festive period in Christmas through to New Year’s. But amid recent uncertainty from the Fed and AI valuations, the thinner liquidity conditions we’re about to see may not necessarily deliver another round of gains in 2025.
In other words, it’s a case of just about anything goes during this period even if we tend to associate it with a more positive performance in the past.
