The so-called Santa Claus rally could get off to a late start this year. But better late than never.
A team of strategists at Ned Davis Research pointed out that stocks have struggled ahead of the start of the “Santa Claus rally” period, which begins on Tuesday.
That’s making some investors nervous. Many are starting to wonder whether the year-end rally could fail to materialize for the second year in a row.
But history suggests there is still hope, even if the rally doesn’t begin on schedule: According to the NDR team, when stocks struggle during the days ahead of the Christmas holiday, they tend to compensate investors with strong gains during the five trading days following the holiday break.
“Although we are currently down 2.0% with only two days to go, historically, that has been positive for the five days after. In the 17 cases where the first five days before Christmas have been negative, the average return was 2.0% in the five days after,” said London Stockton, an NDR analyst, in a report shared with MarketWatch on Monday.
Since the Dec. 17 close, the S&P 500 has fallen nearly 2%, according to FactSet data. Much of these losses followed Federal Reserve Chair Jerome Powell’s news conference on Sept. 18.
Ahead of the news conference, the central bank unveiled its latest decision to cut interest rates. But after Powell took the podium, stocks started to struggle. Many blamed hints about a slower pace of borrowing-cost reductions in 2025.
Read: Forget the stock-market tumble — the Fed made the right move in a wild week
The seven-day ”Santa Claus Rally” period is typically said to include the final five trading days of December, followed by the first two of the new year. This year, the period is slated to begin on Tuesday, and end Jan. 3.
See: Wall Street’s ‘Santa Claus rally’ window is about to open with the Dow down in December
Since 1950, the S&P 500 SPX has averaged a 1.3% Santa Rally gain, according to Dow Jones Market Data, climbing 77% of the time.
NDR’s cycle composite, shown below, illustrates how stocks typically finish the year strong.
Setting aside the question of seasonality, NDR pointed to other reasons why stocks could reverse some of their December weakness before New Year’s Day.
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For one, the U.S. market has fallen into short-term oversold territory, according to several indicators maintained by NDR.
Also, a sentiment tracker employed by the research shop has detected a notable deterioration in investors’ optimism as stocks have sagged since the start of December. That could mean investors have more money sitting in cash ready to deploy to push the market higher.
Even if the year-end rally doesn’t arrive, investors are still sitting on solid gains in 2024. The S&P 500 was up more than 24% year-to-date as of midday on Monday, according to FactSet data.
The S&P 500 SPX and Dow Jones Industrial Average DJIA were both trading lower to start the holiday-shortened week, giving back some of their gains from Friday’s bounce. Major indexes ended last week with losses.
However, the Nasdaq Composite COMP continued to climb, with gains for shares of Big Tech stocks like Nvidia Corp. NVDA, Broadcom Inc. AVGO and Tesla Inc. TSLA helping to keep the index supported.
