Is the Santa Claus rally a real thing for stocks?

The Santa Claus rally is a well-known term in markets, suggesting that stocks perform better towards the end of the year. However, is this really a phenomenon? Analyzing the performance of the S&P 500 during Christmas week over the past two decades reveals a varied story. In 2024, the index saw a +0.7% rise, while in 2023 it was +0.3%, and in 2022 it recorded -0.1%. Overall, the average performance during Christmas week is about +0.65%, lending some credibility to the concept of a Santa Claus rally. However, correlation does not imply causation. Investors should be cautious about assuming that stocks will rise simply because it's Christmas week. Notably, during the period between Christmas and New Year, 2024 marked the first loss in seven years, highlighting that historical patterns don't guarantee future results. Consecutive yearly losses are rare, and expecting another surge based on past performance alone can be misleading. The Fed's recent hawkish monetary policy has tempered market optimism, alongside concerns about an AI bubble. Nevertheless, the S&P 500 is projected to deliver around 16% gains this year, suggesting that the Santa Claus rally may not hold as much significance as previously thought. In conclusion, while there are historical tendencies for stocks to perform well during this festive period, recent uncertainties and lower liquidity may not lead to guaranteed gains in 2025. This raises important considerations for traders relying on past patterns.