S&P 500 Surprises Despite Missing "Santa Claus Rally

Wall Street experienced a spectacular year in 2024, but instead of a tremendous finale, the year ended on a rather subdued note. The S&P 500 achieved an impressive increase of 23.3% over the past year, marking a value gain of at least 20% for the second consecutive year. This phenomenon has not occurred since the 1990s, despite a weak phase in the second half of December, which set in after the Federal Reserve lowered its forecasts for interest rate cuts in 2025. Many investors were surprised by the decline at the end of the year due to the strong annual performance. Yale Hirsch, the founder of the Stock Trader’s Almanac, coined the term "Santa Claus Rally," traditionally encompassing the last five trading days of the previous year and the first two days of the new year. Hirsch observed this tendency since 1972 and noted a correlation with the stock market's performance in the following year. The recent "Santa Claus" period ended on January 3 with a decrease of 0.5% in stocks. From 1993 to 2023, the "Santa Claus Rally" predicted the S&P 500's direction in 23 out of 31 years in the subsequent year. Hirsch once commented on the phenomenon with the saying: "If Santa Claus should fail to call, bears may come to Broad and Wall," referring to the New York Stock Exchange. This indicator now enjoys significant recognition and is often discussed on the trading floor and in economic news, even though the exact reason for the correlation remains unclear. Year-end activity by private investors, portfolio rebalancing, or the investment of bonus payments could influence and reflect market sentiment. With a success rate of 74% over three decades, the "Santa Claus Rally" is not an unbreakable law, though. Just last year, the market fell by 0.9% during the corresponding period, and contrary to expectation, the S&P 500 rose by 23% in 2024. This time, the indicator was wrong.