Santa's Rally

What Is It?

A Santa Claus rally refers to the tendency for stocks to rise over the last five trading days of the year and the first two trading days of the new year—a specific seven-session window.

Yale Hirsch coined the term in 1972. Since 1950, the S&P 500 has averaged 1.3% gains during this period, with positive returns about 79% of the time—significantly better than typical seven-day stretches.

But it's a tendency, not a guarantee. In 2024-2025, the S&P 500 declined during every trading day between Christmas and New Year's—a historic first—yet still closed 2024 up 23%.

Why Might This Rally Happen?

Seasonal optimism — End-of-year bonuses, holiday sentiment, and lighter news flow nudge investors toward risk.

Low trading volumes — With institutions on vacation, modest buying moves prices more than usual.

Window dressing — Portfolio managers adjust holdings before year-end statements, often adding to winners.

Tax dynamics — Tax-loss selling wraps up by December 31, removing selling pressure and freeing up cash for redeployment.

How to Think About It

Short-term calendar patterns rarely provide reliable trading signals on their own.

Many investors use year-end as a natural checkpoint to review their portfolios, check whether their allocations still align with their goals, and assess risk levels.

Market sentiment shifts. When volatility is low and optimism runs high, it can be worth considering how you'd feel if conditions change. Historically, failed Santa rallies have preceded average three-month losses of 1%, while positive rallies have preceded average gains of 2.6%—though past patterns don't guarantee future outcomes.

The Bottom Line

A Santa Claus rally is a seasonal quirk layered on top of fundamentals—interesting to observe, but not a reliable basis for investment decisions. Most long-term investors focus on broader market drivers rather than letting seven days of trading, no matter how festive, influence their strategy.