The Santa Claus rally—Wall Street's most celebrated seasonal pattern—officially begins today. This seven-day window from December 24 through the second trading day of January has historically been kind to investors, and after two consecutive years without one, the setup for 2025 looks promising.

What Is the Santa Claus Rally?

Coined by Yale Hirsch, founder of the Stock Trader's Almanac, in 1972, the Santa Claus rally refers to the tendency of stocks to rise during the last five trading days of the year and the first two of the new year. This year's window runs from December 24 through January 5, 2026.

Historical Performance

The numbers favor the bulls:

  • Average return: S&P 500 has gained 1.3-1.6% during this period since 1928
  • Success rate: Positive returns 77-78% of the time
  • Comparison: The market's typical seven-day average return is just 0.3% with a 58% positivity rate

Why It Happens

Several factors drive the year-end pattern:

Tax-loss selling ends: By late December, investors have finished dumping losers for tax purposes, removing a source of selling pressure.

Holiday optimism: The festive mood and reduced stress may contribute to positive sentiment.

Cash deployment: Institutional investors may put year-end bonuses and new cash to work.

Light volume: With many traders on vacation, bullish momentum can snowball in thin markets.

The Predictive Signal

The Santa Claus rally isn't just about year-end gains—it's also a signal for the year ahead:

  • If the rally succeeds: The S&P 500 averages a 2.6% gain in the following three months
  • If it fails: The index averages a 1% loss in the following three months

As the Stock Trader's Almanac puts it: "If Santa Claus should fail to call, bears may come to Broad and Wall."

The Two-Year Drought

Notably, both 2023 and 2024 failed to deliver Santa Claus rallies for the S&P 500. In 75 years of market data, there has never been a stretch of three consecutive years without one—suggesting historical odds favor 2025.

Why 2025 Looks Favorable

Several factors support a positive year-end:

Market momentum: The S&P 500 just posted four straight winning sessions and hit a record high.

AI tailwinds: Strong Micron earnings eased concerns about AI spending sustainability.

Favorable inflation data: Recent CPI prints have been constructive.

Economic strength: Q3 GDP of 4.3% supports corporate earnings expectations.

According to LPL Financial chief technical strategist Adam Turnquist: "Momentum heading into year-end suggests a favorable setup for a positive Santa Claus Rally—a historically bullish signal for January and the year ahead."

Potential Headwinds

Not everything favors the bulls:

Elevated bond yields: The 10-year Treasury yield near 4.15% creates competition for stocks.

Fed hawkishness: The December meeting's less-dovish signals dampened rate-cut hopes.

Valuation concerns: The S&P 500's CAPE ratio remains elevated by historical standards.

Year-to-Date Context

Regardless of the Santa Claus rally's outcome, 2025 has been strong:

  • S&P 500: Up approximately 17% year-to-date
  • Following 2024: +24%
  • Following 2023: +23%

A third consecutive year of strong gains would mark a remarkable run for U.S. equities.

The Bottom Line

The Santa Claus rally period has begun, and conditions appear favorable. With the market at record highs, positive momentum, and statistical history on the bulls' side, investors have reason to expect a festive finish to 2025. More importantly, a successful rally would historically signal continued gains in early 2026. Whether Santa delivers depends on the next seven trading days—but for now, Wall Street is on the nice list.