Bull Market Continues, with a Santa Claus Rally!

Last year, Tom Lee predicted a late year Santa Claus Rally that would lift the S&P to its final height in 2024 of 4750 points. He nailed it and solidified himself as an elite forecaster.

And guess what?  Another Santa Claus rally is predicted for this Xmas Season.  Goldman Sachs Group Inc. trader Scott Rubner believes a year-end rally will start this week and push the S&P 500 Index about 4% higher to 6,200 points.

The term Santa Claus rally was coined back in 1972 by Yale Hirsch, the founder of the Stock Trader’s Almanac.  He defined the time period of the SCR to be the final 5 trading days of the year to the first two trading days of the following year.  These seven days have historically shown higher stock prices 79.2% of the time, reflected in the S&P 500 index.

Last year, seen in the Google Finance chart below, we saw a surge, particularly for Russell small caps which rocketed about 14%, and gave back about half of that in the first half of January. Given the economy wasn’t strong and interest rates issues abounded, there wasn’t much to sustain it other than hype. But as a poor year passed, the markets stayed strong.  This year, with the January 20th event and Trump’s promises, the markets have to be really buzzing with anticipation. In February, there won’t be much to hold the Dow Jones, S&P, NASDAQ and Russell 2000 back. The 5 year predictions are positive too with massive infrastructure and AI chip spending. Jobs, wages and consumer spending will improve keeping consumers in a spending mood.

bull market peaks.
bull market peaks. Screenshot courtesy of Google Finance.

Investor’s Business Daily – S&P Growth by Month

Typically, March and April are just slightly stronger in price growth than the end of year market surges.

Investor’s Business Daily – S&P Growth by Month. Screenshot courtesy of IBD.

The Stock Trader’s Almanac compiled data from 1950 through 2022. It revealed a Santa Claus rally happened 58 times (80% of the time), and resulted in a 1.4% growth in the S&P 500. A number of reasons are given as to why the SCR happens including:

  • Institutional investors (like big banks, hedge funds, mutual funds and pensions) often make big stock buys before the end of the year to “bulk up” their portfolios with stocks
  • investors are in a holiday season mood and not so pessimistic or worried (wall of worry suddenly disappears)
  • year-end bonuses given out
  • last minute investing to capture tax deductions
  • investors take advantage of tax code loopholes, by selling stocks they’ve taken a loss on at the end of December and then buy them back in January.
  • investors believe the SCR will happen therefore they are drawn in by the rising prices
  • lighter volume trading due to institutional investors taking the week off, leading the retail investor crowd to bid up prices
  • holiday spending increases indicating a more optimistic consumer
  • a hypothesis of a seasonal anomaly that causes stock prices to increase in the following month of January
  1. a current bull market run on the Dow Jones, NASDAQ, along with a December 25 basis point drop and more FED rate easing in 2025.
  2. a current market rotation into Russell 2000 stocks.
  3. lower credit card and mortgage rates
  4. normal mega-cap earnings
  5. rebirth of small business fortunes next year
  6. consumer confidence and a new record in Xmas season spending
  7. the realization that President Trump’s economic policies will be enacted 3 weeks after the New Year

Top 10 Year End Rally Stocks

After January 2nd, and the culmination of the 2024 Santa Claus rally, we traditionally see prices rise in January, before it goes into a lull for February and March. However, this year the economic and political outlook has changed. With President Trumps inauguration, investors will realize the markets are going to change.

Even now, institutional and retail investors know the Trump changes may lower taxes, support US businesses, and cut harmful regulations.  Still, this hasn’t hit at a gut level, but in early spring, the full intent and value of his policies will come into focus. This means the markets will be dramatically different in 3 to 6 months.

A 1 to 2% boost during the last week of the year will be welcomed by most traders and perhaps is a sign Americans are investing in savings.  We’re in a euphoric period of investing controlled only now by the wall of worry.

The 2025 stock market predictions are optimistic as is the 5-year outlook for equities.  There is $6 Trillion sitting idly in money markets and despite the FEDs insistence on keeping rates high so they can sell treasuries and bonds, President Trump will push hard to end the high rates. Those rates must come down to spur the housing market and contribute to building America’s supply and stimulate small business.

 

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