Don’t Tell the Kids, but Santa Rallies Aren’t Real

As we close in on the holidays, Santa Claus is expected to deliver many things. For years, pundits have suggested he brings tidings and joy for stocks in late December, birthing a seasonal adage called the “Santa Claus Rally.” We hate to play Grinch with such a stock market theme at the holidays, especially such an uplifting, bullish one. But history shows stocks don’t follow seasonal adages—the Santa Claus Rally is make-believe.

Over time, the Santa Claus Rally has gained varying definitions. The term first appeared in 1972’s Stock Trader's Almanac, with the theory suggesting stocks perform well in December’s last five trading days and January’s first two. Yet, in the years since, folks in the investing world have stretched it out, citing the year’s last two full weeks—or even the entire month of December. More recently, some have even suggested the lack of a Santa Claus Rally is a bad omen for stocks over the following year—if markets can’t rise during a such a joyously bullish stretch, they are destined for the naughty list over the next twelve months.

But what do the data show? Since 1928, the S&P 500 has a 1.3% median return in the seven-day Santa Rally stretch.^[i] This is nicely above any seven-day period’s 0.4% median. Pretty bullish sounding! Moreover, Santa Claus Rally returns are in the black 71.9% of the time, somewhat above stocks’ 56.9% positivity rate over any seven-day stretch.^[ii] Perhaps not hugely so, but stocks rise a bit more often.

However, the rally-talk misses a key point: markets have been a scrooge plenty of times over this stretch. For example, the seven-day downturns in 1931 (-5.0%), 1967 (-1.3%), 1980 (-2.2%), 1991 (-3.0%) or 2000 (-4.0%).^[iii] Loading up on stocks just before Christmas won’t always bring proverbial presents under the tree. You could end up with a lump of coal.

Now let us turn to the “December as a bullish month” claims. The calendar’s final month has averaged a 1.3% return since 1928.^[iv] Pretty good, but lower than July’s (which, incidentally, is within the “Sell in May and go away” window—rebuking that seasonal illogic).^[v] Also worth noting: December’s average is skewed pretty heavily upward by big bounces in 1971 (8.5%), 1987 (7.3%) and 1991 (11.2%)—the latter two falling in the typically steep early stages of new bull markets.^[vi] It wasn’t just holiday magic driving returns.

And, like the post-Christmas period, December isn’t free of negativity. Take December 2022’s -5.9% fall amid a flurry of fears, including Fed rate hikes and Russia’s war in Ukraine.^[vii] Or December 2018, in which a major correction sank US stocks -14.8% from the month’s start to a Christmas Eve bottom, extending a correction that began earlier that fall.^[viii] Not very merry, if you ask us.

As for that bad omen? It is non-existent. Since 1928, years without a Santa Claus Rally (i.e., stocks were down in the seven trading days post-Christmas) have preceded a full-year decline just 35% of the time.^[ix] That is it! Not exactly reliable. Heck, each of the last three Santa periods were down. With mere days to go in 2025, it looks like stocks will have climbed in the subsequent year each time.

Our point: December and the post-Christmas rally aren’t bad periods for stocks, but most stretches are fine, too. There is nothing statistically significant—or revealing—about these periods versus others. And there shouldn’t be, as seasonality isn’t a thing in markets. Rather, stocks move on broad economic, political and sentiment drivers—specifically, how the former two relate to the latter, with surprises swaying markets most. But the timing of Christmas and December doesn’t even surprise small children. Consider: If seasonal adages worked every time, everyone would use them—and profit. This obviously isn’t the case.

Plus, stocks price in all publicly available information, data and opinions near instantly, and the Santa Claus Rally argument is decades old. It would have been priced in ages ago. Think about it: If December was inherently good for stocks, traders would start buying in November knowing the holidays were coming. Then, as time passed, they would begin in October … then September—all to get ahead of the wave. Just as you now see holiday decor on the shelves in September, you would be buying the Santa Claus Rally months before the holiday. But this, too, isn’t reality.

Seasonal adages might work just enough to remain in the zeitgeist, but that doesn’t make them reliable market indicators. Keep this in mind when headlines suggest the Santa Claus Rally is coming to town.