By: Jerry Nix | Freewavemaker, LLC                                                                                December 30, 2024

The “Santa Claus rally” is a well-known stock market phenomenon where stock prices tend to rise during the last five trading days of December and the first two trading days of January. There for the rally should cover December 24^th, 26^th, 27^th, 30^th, 31^st, of 2024 and January 2^nd and 3^rd of 2025. A total of 7 trading days.

This trend has been observed consistently over the years, with the S&P 500 gaining an average of 1.3% during this period since 1950. It is important to understand it is simply a trend and not a guarantee.

Several theories explain why this rally happens:

1. Holiday Optimism: The holiday season brings increased consumer spending, positivity, and optimism, which can boost investor sentiment.
2. Tax Considerations: Investors often sell underperforming stocks to offset gains for tax purposes and reinvest in the market, pushing stock prices up.
3. Portfolio Rebalancing: Fund managers rebalance their portfolios at year-end, contributing to increased market activity and price gains.
4. Low Trading Volume: Many institutional traders are on holiday, leading to lower trading volumes and less resistance against upward price movements.
5. Speculative Buying: Investors may buy stocks in anticipation of a positive start to the new year.

While the Santa Claus rally is not a guarantee, its historical consistency makes it a noteworthy trend for investors to monitor. This year (as we are now in the 4^th day of this rally) we may be in for what I call the Grinch Rally.

Take a look at these four charts below. The first is the Dow Jones Industrial Average, the second is the Nasdaq Composite, the Third is the S&P 500 Index and the Fourth is the Russell Small Cap. You will notice the first two days of this rally did look pretty good, but the last two leave a lot to be desired. Counting today (12/30/2024), we only have 4 days left for this rally to turn-a-round – if it is going to be another good year for a Santa Claus Rally.

Key to Graphics:

Blue Vertical Line: Christmas Day – Market closed

Orange Horizontal Line: Where the market closed on 12/23/2024

Pink Horizontal Line: Where the market closed on Friday 12/27/2024s

Green Diagonal Lines: The Current trend of the market over two day periods.

Figure 1 – Dow Jones Industrial Average Index

Figure 2 The NASDAQ Composite Index

Figure 3 The Russell 2000 Small Cap Index

Figure 4 The S&P 500 Index

So, who stole Christmas and the Santa Claus Rally from us Investors?

Could in be that Grinch – Jerome Powell – who is the present head of the Federal Reserve Bank spouting out his doom and gloom after lowering interest rates a quarter of a point last week.

It very well could be, but there are other factors that could have an effect on the “Santa Claus Rally,” which is why one should only consider it as a potential and not a guarantee. After all, the only guarantee about stock investing is that prices of the stock will go up and down … and today we live in a fickle world of computer trading that simply drives the markets wild in a “nano-second” before the common retail investor can bling his/her eyes.

Interestingly, we haven’t seen a Santa Claus rally yet this year! There could be a few reasons for this:

1. Market Uncertainty: Investors might be cautious due to economic uncertainties or geopolitical tensions, which can dampen the usual end-of-year optimism.
2. Recent Market Performance: The market has experienced some volatility recently, and this might have affected investor sentiment.
3. Economic Indicators: Key economic indicators or corporate earnings reports might not have met expectations, leading to a more cautious approach from investors.
4. Past Trends: Sometimes, the market doesn’t follow historical patterns, and this year might just be one of those exceptions.

While the Santa Claus rally is a well-documented phenomenon, it’s not a guaranteed occurrence every year. Do you think we might still see a rally before the year ends?

Personally, I don’t know – but I sure hope so!

Whatever happens, make 2025 one of the best years yet for investing and reaping lots of profits. And always remember … Buy Low and Sell High and truly get to understand what Low is and what High is.

Finally, as we close out 2024, remember that if you are not rowing the boat and making waves, you are only drifting where the currents take you, and you may not be happy when you get there.

Jerry Nix | Freewavemaker, LLC