The Santa Claus rally—that magical year-end surge that has historically boosted stocks during the final trading days of December and first two days of January—is off to a rocky start. Monday's pullback across major indices has raised questions about whether the seasonal pattern can deliver positive returns for investors after disappointing results in both 2023 and 2024.

Understanding the Santa Claus Rally

The Santa Claus rally refers to the tendency for stocks to advance during the seven-trading-day period spanning the last five sessions of the current year and the first two of the new year. This year, that window runs from December 24 through January 5.

Since 1950, the S&P 500 has averaged a gain of approximately 1.3% during this period, with positive returns occurring 78% of the time, according to research from LPL Financial. By comparison, the market's typical seven-day average return is just 0.3%, with a 58% positivity rate.

"History shows a clear pattern: since 1950, the S&P 500 has averaged a 1.3% return during this period, with positive results occurring 78% of the time. For comparison, the market's typical seven-day average return is just 0.3%."

— Adam Turnquist, Chief Technical Strategist, LPL Financial

A Rare Streak Hangs in the Balance

What makes this year's Santa Claus rally particularly noteworthy is the recent streak of disappointments. Both 2023 and 2024 failed to deliver Santa Claus rallies for the S&P 500—and according to historical data, there has never been a stretch of three consecutive years without one in the 75 years the pattern has been tracked.

The 2024 period was especially notable, marking the first-ever S&P 500 loss between Christmas and New Year's, ending a seven-year winning streak for that specific window.

Headwinds Facing This Year's Rally

Several factors are weighing on the seasonal pattern this year:

  • Elevated bond yields: Despite three Fed rate cuts in 2025, the 10-year Treasury yield remains above 4%, creating competition for equity capital.
  • Stretched valuations: After gains of 17%+ year-to-date, stocks aren't cheap, making investors more inclined to take profits.
  • Policy uncertainty: The incoming administration's potential tariff policies and Fed leadership changes add uncertainty.
  • Thin liquidity: Holiday trading volumes amplify price movements in both directions.

Context: An Extraordinary Year

Whatever happens in the final days of December, 2025 has already delivered exceptional returns for equity investors. The S&P 500's 17%+ gain puts it among the stronger years of the current decade. The Nasdaq Composite has outperformed with returns exceeding 21%, while the Dow's 14% advance positions it for its strongest year since 2021.

Against this backdrop, a flat or modestly negative Santa Claus rally would be a minor footnote rather than a significant concern for most investors.

What to Watch

Several factors could determine whether the rally finds its footing in the remaining sessions:

  • Fed minutes: Wednesday's release could shift sentiment if it reveals unexpected dovish or hawkish signals.
  • Economic data: While the calendar is light, any surprises could move markets.
  • Sector rotation: A shift from selling to buying in technology could change the market's trajectory.

The Bigger Picture

For long-term investors, the Santa Claus rally is more of a curiosity than a strategy. While the historical pattern is real, the seven-day window represents just a tiny fraction of the investing timeline that matters for building wealth.

Whether or not the seasonal pattern delivers this year, the more important question for 2026 is whether corporate earnings can continue to grow, whether the economy can sustain its expansion, and whether the Fed can engineer a soft landing. Those factors—not holiday trading patterns—will ultimately determine investor outcomes in the year ahead.