The odds of a rising stock market are not significantly different whether or not there is a Santa Claus rally.
The lack of a “Santa Claus rally” does not doom the U.S. stock market in 2025.
The time from Christmas through the second trading day of January marks the traditional definition of the Santa Claus rally. Over the past century, the U.S. stock market during this time has risen more frequently than over other periods of comparable length.
This time, though, the market is more Scrooge-like. From Christmas through the second trade day of January, the Dow Jones Industrial Average DJIA +0.80% lost 1.3%, while the S&P 500 SPX +1.26% lost 1.6%. So, even with the market’s comeback on Jan. 3, Santa Claus failed to call on Broad and Wall this year.
Some people on Wall Street think this is bad news because they think that if the stock market loses during the Santa Claus rally, it will probably lose again in 2025. But there isn’t much evidence to back up this fear. When there is a Santa Claus rally at the end of the year and when there isn’t, the odds of the stock market going up are about the same.
Take the last time the Dow went down during the Santa Claus rally. That was nine years ago. From December 25, 2015, Christmas Day, to February 2, 2016, the Dow fell 2.2%. The stock market, on the other hand, went through the roof. From the second day of 2016 to the end of the year, the Dow gained 15.2%.
The above chart, which is based on the Dow since its start in 1896, shows that the historical trends tell a similar story. This is just one piece of information. Since then, the market has gone up 65.6% of the time.
After Santa Claus rally times when the market went up, the chances of the market going up went up a little to 66.7%. After Santa Claus rallies during which the market went down, the chances of the market going up again dropped to 60.7%. At the 95% confidence level that statisticians use to see if a pattern is real, the differences between these odds are not important.
When people talk about the Santa Claus rise, they often look at the S&P 500 instead of the Dow. Due to its longer history, I chose the Dow. However, my results would have been the same if I had looked at the S&P 500 instead.
There are several reasons why these findings shouldn’t surprise you. First, it’s not likely that there was ever statistically significant evidence that the stock market’s return over the course of a year was linked to how it did between Christmas and the second trading day of January. But even if there had been, the trend would have gone away because so many people would have known about the link.
In the end? How the market has done in the last week has nothing to do with how it will do this year.
