Stock Investors Face Indecision as Indicators Diverge—A Critical Tiebreaker Looms
Investors are grappling with mixed signals from two closely watched stock-market patterns, leaving them in a state of uncertainty as they await the deciding factor for the year’s trajectory.
The Santa Claus Rally, which typically sees the S&P 500 (SPX) rise during the last five trading days of a calendar year and the first two of the next, failed to deliver in 2024-2025. Instead, the index fell 0.53% during that period. Meanwhile, the first-five-days indicator provided a glimmer of optimism, with the S&P 500 posting a 0.62% gain in the first five trading days of 2025.
“Now that the S&P 500 has recorded a decline during the Santa Claus rally while eking out a slight gain in the first five days, investors are once again frozen by indecision,” said Sam Stovall, chief investment strategist at CFRA, in a note following Wednesday’s market close.
Historical Context Offers Clues
Data from Dow Jones Market Data suggests that a positive first-five-days performance could signal a brighter outlook. Since 1950, the S&P 500 has shown a median full-year gain of 16% following a positive start, rising 81.3% of the time. Conversely, a negative first-five-days performance has resulted in a median gain of just 2.6%, with the index rising only 55.6% of the time.
However, the ultimate decider might be the January barometer, which reflects the S&P 500’s performance over the entire first month. According to Jeff Hirsch, editor of the Stock Trader’s Almanac, the January barometer has historically been a more reliable predictor.
In seven instances since 1950 where the Santa Claus rally failed, but the January barometer was positive—regardless of the first five days—the S&P 500 delivered full-year gains six times, with an average increase of 18.2%. The sole exception was a modest 1.5% decline in 1994.
The Tiebreaker Awaits
With investors watching closely, January’s performance could hold the key to breaking the current stalemate. While history provides valuable insights, it remains to be seen whether the market will follow these patterns or chart a new course in 2025.
