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The Santa Claus Rally refers to the performance of the stock market during the last five business days of December and the first two business days of January.
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Historically, the S&P 500 has seen positive returns about 80% of the time during this period.
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This year’s Santa Claus rally, however, seems to carry a warning.
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Holidays are often seen as a time for celebration—not just for people, but also for the markets.
Looking at past performance, the S&P 500 usually provides a good opportunity to lock in profits at the end of the year. From 1950 to 2025, the index has posted positive returns 78% of the time, with an average increase of around 1.3%.
Yet, this year’s scenario feels different and perhaps a bit worrisome.
For the first time since 1950, the S&P 500 has recorded three consecutive years of negative returns. In 2024, it declined by 0.9%, and then fell again by 0.3% in 2025. This year, it has dropped slightly by 0.1%.
While it’s not an exact science, the Santa rally has often hinted at the overall market direction for the following year. Historically, in years when the S&P 500 is up, the average annual return ends up being around 10.4%. Conversely, during down years, it’s much lower at about 6.1%.
To be fair, past performance doesn’t guarantee future results. Just looking at the last couple of years, the S&P 500 still managed impressive gains of 23% and 16% despite earlier declines.
Interestingly, a three-year streak of negative returns during this period has never happened before. The double-digit returns in 2024 and 2025 may suggest a higher risk of a significant decline this year. But then again, who really knows?
And that’s what might be the most unsettling aspect of it all.
Before making any decisions on investments in the S&P 500, consider these points:
Our analysis team has identified what they see as the top stocks to invest in right now—these don’t include the S&P 500 index. They believe these stocks have considerable potential for growth.
For instance, if you held $1,000 in Netflix since December 2004, it would have grown to an astounding $488,222! Similarly, a $1,000 investment in Nvidia back in April 2005 would now stand at about $1,134,333!
