Every year investors wait to see if Santa Claus will visit Wall Street as the holiday season approaches. Historically, stocks usually see a festive boost called the Santa Claus rally, but its arrival is never guaranteed.
- The SPY closed higher Monday. See the chart and the price action here.
What is the Santa Claus Rally?
The term “Santa Claus Rally” specifically refers to the trend of rising stock prices during the last five trading days of December and the first two trading days of January.
If a Santa Claus rally comes in 2025, it would officially begin on Dec. 24 and last through Jan. 6, 2026.
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Historically, the S&P 500 as tracked by the SPDR S&P 500 ETF TRUST (NYSE:SPY), has gained an average of 1.3% to 1.6% during this seven-day window.
The Santa Claus rally is typically driven by a combination of year-end factors:
- Tax-Loss Harvesting Ends: The pressure resulting from the heavy selling used to offset capital gains usually wraps up by mid-December.
- Retail Dominance: With institutional “big money” managers on vacation, bullish retail investors often drive the lower-volume holiday sessions.
- Holiday Spirit: General optimism and the investing of year-end bonuses often provide a psychological tailwind.
Sectors to Watch
While the broader market usually lifts, certain sectors tend to lead the sleigh:
Small-Caps: Historical data suggests small-cap stocks often outperform large-caps during this window as investors look for “catch-up” trades.
Technology: Particularly in 2025, the AI-driven tech sector remains a primary focus for growth-oriented retail buyers.
Consumer Discretionary & Financials: Retailers benefit from holiday spending data, while Financials often lead early-stage rallies as interest rate outlooks stabilize.
2025 Analyst Outlook
Heading into the final week of 2025, the S&P 500 is up approximately 16% year to date. While December started on a shaky note, many analysts remain optimistic.
Ed Yardeni of Yardeni Research has suggested the S&P could even touch the 7,000 level before year-end.
UBS and JPMorgan analysts see the potential for a rally to act as a springboard into a strong 2026, supported by resilient earnings and potential Fed easing.
However, as the old adage warns: “If Santa should fail to call, bears may come to Broad and Wall.”
A failure for stocks to rally this week could signal a defensive start to the new year.
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