Every December, as holiday parties fill the calendar and year-end checklists get shorter, the stock market picks up a familiar storyline: the Santa Claus Rally. You’ll hear it mentioned on financial news channels and in market commentaries, usually with a mix of optimism and skepticism. Some investors swear by it. Others dismiss it as folklore. As with most things in investing, the truth sits somewhere in the middle. So what is the Santa Claus Rally, and should investors pay attention as we close out 2025?
The Santa Claus Rally refers to a historical tendency for stock prices to rise during a very specific period: the last five trading days of December and the first two trading days of January. This isn’t a recent invention. The term dates back to the 1970s, when market historian Yale Hirsch observed that stocks often performed better than average during this short year-end window. Over time, the idea stuck and became part of the market’s seasonal vocabulary.
Importantly, the Santa Claus Rally does not mean the market goes up every December, nor does it suggest guaranteed gains. It’s simply a pattern that has shown up often enough over many decades to be worth noting.
Looking at long-term market data, the Santa Claus Rally has occurred roughly three out of every four years, with average returns during that seven-day stretch typically around 1% to 1.5%. That may not sound dramatic, but over such a short period, it’s meaningfully higher than normal. Of course, history also shows plenty of exceptions.
In years marked by recessions, financial stress, or major uncertainty, Santa has skipped Wall Street altogether. Recent decades have also seen the effect become less consistent as markets have grown more efficient. That’s why most professionals view the Santa Claus Rally not as a prediction, but as a sentiment gauge, a way to take the market’s emotional temperature as one year ends and another begins.
There’s no single explanation, but a few factors tend to show up each year. By late December, much of the selling of losing investments to reduce taxes has run its course. Trading volumes are lighter as many institutional investors step away for the holidays. At the same time, optimism tends to creep in; earnings are largely known, big policy decisions are often on pause, and investors begin looking ahead to the new year. Put together, those conditions can create a modest upward bias. Not always — but often enough to earn the rally its name.
As we head into the final weeks of 2025, the backdrop is familiar: cautious optimism mixed with legitimate uncertainty. Investors are watching interest rates closely, hoping for a more favorable policy environment. Inflation has cooled from its highs, but concerns around valuations, economic growth, and geopolitical risk remain very real.
In other words, this is not an environment where a calendar effect alone will determine market direction. Could we see a Santa Claus Rally this year? Possibly. History suggests the odds lean that way, but whether it shows up or not shouldn’t drive major financial decisions.
Seasonal trends like the Santa Claus Rally are interesting, and they make for good headlines. But they are no substitute for a well-thought-out financial plan. Long-term investing success is still built on fundamentals: diversification, appropriate risk, discipline during volatile periods, and a focus on goals rather than short-term market moves.
If Santa brings a little cheer to the markets this year, that’s a bonus. If not, it’s a reminder that markets don’t move on tradition, they move on expectations, data, and human behavior. Either way, the smartest move is the same one investors should make every season: stay focused on the plan, not the noise.
Have a blessed week!
Joe Shearrer
Securities and advisory services offered through LPL Financial, a registered investment advisor, Member FINRA/SIPC.
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly. Investing involves risk including the loss of principal. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.
Sources:
https://naga.com/eu/academy/santa-claus-rally?category=1&trk=public_post_embed_feed-article-content