For three consecutive years, stocks have never had a negative “Santa Claus rally” phase.
Three consecutive negative “Santa Claus rally” periods have never occurred in U.S. stocks. History indicates that the chances of a comeback this year are favorable following two consecutive misses.
The final five trading sessions of each year and the first two of the following year comprise the historically robust Santa rally period, which formally began on Wednesday. So far, equities are doing okay: The S&P 500 SPX is still up 0.2% from the start of this year’s Santa period, despite some slight weakening on Friday.
Since 1950, the S&P 500 has closed higher 76% of the time during the course of seven trading days, averaging a gain of around 1.3%. According to Dow Jones Market Data, the Nasdaq Composite COMP has earned an even stronger average return of 1.7% over the same period, while the Dow Jones Industrial Average DJIA has recorded an average gain of more than 1.3% (see table below).
DATA FROM THE DOW JONES MARKET
The stakes for a rally this year appear to be especially high, despite the fact that investors are keenly monitoring if Santa Claus will return to the market this year due to light holiday trading and a lack of significant catalysts to move stocks. The last two Santa rally periods have seen stocks post negative gains, but Santa has always been on Wall Street for three consecutive years.
“It is to be assumed that these seven days will be in the green. However, we haven’t seen Santa in two years, which is like having coal in your stocking for two years in a row. The good news? Ryan Detrick, chief market strategist at Carson Group, stated, “We’ve never had a negative ‘Santa Claus rally’ period for three years in a row.”
The chart below illustrates each Santa Claus rally period since the tech-bubble collapse in 1999, together with the performance of stocks in the ensuing January, first quarter, and entire calendar year, to put those historical trends into perspective.
Detrick stated in a client letter on Tuesday that “when Santa comes, the chances of continued solid times are high, while when Santa takes a break and stays in the North Pole, then trouble is higher.” “Even last year for example, Santa didn’t come and the first quarter of 2025 was a rough one for investors, and we all remember what happened in April after ‘liberation day.'”
CARSON INVESTMENT RESEARCH, FACTSET
According to Yehuda Leibler, president and chief technology officer at ARX Advisory, the stock market’s year-end rally in 2024 cast doubt on the legitimacy of the Santa rally because stocks not only ended the period lower but also fell on every trading day between Christmas and New Year’s Day, a first for the large-cap benchmark index.
The market has already shown indications of recovery earlier this week, with the S&P 500 reaching a new all-time high on Christmas Eve, but it is still impossible to predict in advance whether the lack of a Santa rally in 2024 will give a mean-reversion chance this year, according to Leibler.
“Markets follow sentiment, policy, and fundamentals rather than calendars. Leibler told MarketWatch on Friday that the Fed’s rate path, AI-driven earnings forecasts, and Treasury rates BX:TMUBMUSD10Y will be far more significant for 2026 than whether equities were able to make gains in the last week of December.
“Use the ‘Santa Claus rally’ as a sentiment indicator that, in the midst of the chaos, occasionally offers helpful clues. Don’t confuse it with a crystal ball, he continued.
As you can see, Wall Street frequently gives investors their gift a day after Christmas.
During Friday’s early afternoon trade, U.S. stocks were mostly lower. According to FactSet statistics, the Dow was down 0.2%, the Nasdaq was barely moved, and the S&P 500 was down 0.1% to trade close to 6,923.
