S&P 500 Rebounds, Erasing December Losses in Pre-Holiday Rally
The S&P 500 wiped out its December losses on Tuesday in a pre-holiday rally, buoyed by the seasonal optimism of the “Santa Claus rally” period. The index climbed 1.1% in a holiday-shortened session, marking its third consecutive day of gains and reversing losses from last week’s midweek selloff.
Despite 2024 being a standout year for the large-cap benchmark, December has struggled to live up to its reputation as a historically strong month for stocks. Jeff deGraaf, chairman and head of technical research at Renaissance Macro Research, noted in a Tuesday morning briefing that December typically delivers a 74% probability of positive returns. However, this year’s performance has been teetering toward the 26% outlier unless a significant rally materializes.
The Santa Claus rally, first identified by Yale Hirsch of the Stock Trader’s Almanac in 1972, refers to a seasonal trend where the S&P 500 tends to rise during the last five trading days of the year and the first two of the new year. Historically, the index has gained an average of 1.3% during this seven-day stretch, outperforming the average seven-day gain of 0.24%.
Mark Hulbert, a MarketWatch columnist, attributes this phenomenon partly to investor disengagement during the holidays, which has allowed the trend to persist despite increasing awareness.
Tuesday’s market action offered a promising start to this year’s Santa Claus rally. The S&P 500 turned its December losses into a modest 0.2% month-to-date gain. The Dow Jones Industrial Average rose 0.9%, narrowing its December decline to 4%, while the Nasdaq Composite surged 1.3%, driven by a rebound in tech stocks, and secured a 4.2% gain for the month.
As U.S. markets prepared to close early on Tuesday and remain shut on Wednesday for Christmas, investors kept an eye on Hirsch’s famous cautionary phrase: “If Santa Claus should fail to call, bears may come to Broad and Wall.” Historically, the absence of a Santa rally has often preceded bear markets or periods of lackluster performance, as seen in years like 2000, 2008, and 2015.
However, 2024 has proven resilient even in the face of missed seasonal trends. Despite December’s challenges, the S&P 500 is on track for a stellar 26% annual gain, with its largest pullback of the year—a modest 8.5%—occurring between mid-July and early August.
As the calendar inches closer to year-end, investors remain cautiously optimistic, hopeful that the Santa rally will deliver its characteristic cheer and close the year on a strong note.
