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Will the Stock Market Finally Get a 'Santa Claus Rally' This Year?

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Photo Illustration of Santa Claus on a sleigh, being pulled by reindeer, with a ascending stock market projection

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Analysts and investing pros predict that the stock market will finish the year on a high note — with a few caveats, such as high interest rates and the aftereffects of the government shutdown. If stocks gain during the final days of the year, this will be the first so-called “Santa Claus rally” in three years.

The term, which investing whiz Yale Hirsch is credited with coining in 1972, refers to the historical tendency of stocks to rise around Christmas. The calendar dates for a Santa Claus rally fluctuate based on what day of the week Christmas and New Year’s occur, but it’s generally considered the final five trading days of December plus the first two trading days of January.

According to Dow Jones Market Data, the three major indexes — the Dow Jones Industrial Average, the S&P 500 and the Nasdaq Composite — have historically logged gains averaging 1.3% to 1.65% over these seven days. Over the past few decades, the broad-based S&P 500 index has closed higher about 75% of the time.

While there’s no Magic 8 Ball that can predict a market outcome for certain, here’s what experts say about the likelihood of a 2025 Santa Claus rally.

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Yes, we’ll get a Santa Claus rally

“I think it’s likely,” says Jed Ellerbroek, portfolio manager at Argent Capital Management in St. Louis. “There's a lot more positive than negative” market conditions today, he says, ticking off double-digit corporate earnings growth, a pickup in IPOs and M&A activity and AI-driven spending. “I think the growth is broadening out a bit, too,” he adds, which benefits a wider swath of corporate America.

Investing pros say there are a few technical occurrences around this time that contribute to year-end rallies and that make it likely we’ll have one in 2025. For starters, trading volume is lighter because many traders are on vacation during the winter holidays. This amplifies the activity that does take place, and the retail investors who are still buying and selling tend to be more optimistic than their institutional counterparts. Portfolio rebalancing and selling to capture tax losses also play a role in year-end market activity.

Some experts suggest that holiday cheer helps to fuel year-end gains. “A lot of people, when they look at the Santa Claus rally, it’s a confirmation of existing optimism,” Sam Stovall, chief investment strategist at CFRA Research, told Money earlier.

This year, that optimism translates into higher risk tolerance, according to Adam Turnquist, chief technical strategist for LPL Financial in Charlotte, North Carolina. “Risk appetite seems to be back… and that’s the rotation you really want to see,” he says.

“We have decent momentum to the market,” he notes, heading into the final five trading days of the year, which starts Wednesday. “When you look at December progression, it’s really a back-half-weighted month in terms of performance. A lot of the gains do come right around the holiday period."

Also, historical odds favor an optimistic outlook: Both 2023 and 2024 failed to deliver Santa Claus rallies for the S&P 500, and Turnquist says that in 75 years’ worth of market data, there has never been a stretch of three consecutive years without one.

No, Wall Street will get Scrooged

Not everyone is so upbeat, though. "Investors are navigating a landscape where traditional year-end patterns could be challenged," Bank of America's global research team warns.

“December is often synonymous with buoyant equities,” BofA writes in a recent research note. “But this year’s backdrop is anything but ordinary." A combination of AI-driven volatility, uncertainty about the future direction of Federal Reserve policy and lingering government-shutdown effects on economic data publication contributes to an unsettled dynamic. "Against this backdrop, a December rally could face headwinds," BofA warns.

One aspect of the current market that could weigh on a Santa Claus rally is the elevated level of bond yields, according to Turnquist. Even though the Fed cut rates three times in 2025, including a cut in December, the yield on 10-year Treasurys — which Wall Street uses as a benchmark for corporate borrowing costs — hasn't moved down as much.

"They're not far from 4.2%. When we start getting above that level, that introduces some significant upside risk," Turnquist says. "That would pour some cold water on this equity rally" by clipping the wings of fast-growing startups and small-cap companies that need to borrow heavily to expand.

It doesn’t matter anyway

For retirement savers, a Santa Claus rally should be a non-event, says Chad Holmes, founder of Formula Wealth in Fairhope, Alabama.

“There’s a difference between gambling and investing,” he says, warning that changing any of your investments to try to capture short-term gains is risky. Even Wall Street pros aren’t very successful when it comes to timing the market, and short-term volatility can erase gains as quickly as it adds them.

“When trying to time a short-term, volatile position, you may win. You may not,” Holmes points out. If you need those invested funds in the short term, trying to time the market could result in your locking in losses rather than waiting for valuations to recover.

The end of the year does give you a good opportunity, though, to evaluate your asset allocation and make sure it still aligns with your risk tolerance and long-term goals. If tech-driven stock gains have thrown your allocation out of balance, this is a smart time to recalibrate, Holmes advises.

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