Stocks are skipping the widely expected year-end rally — and that isn’t signaling the best start for the market heading into 2025. Investors were hoping to end the year off strong with a “Santa Claus” rally, which spans the five final trading days of a calendar year and the first two trading days of January. The S & P 500 has gained, on average, 1.3% during this stretch of time, while finishing higher nearly 80% of the time, according to Dow Jones Market Data going back to 1950. The S & P 500 has instead finished lower during each of the past three trading days, putting the index in the red over the five-day period. To be sure, the broad-market index rallied 23% this year, marking its second consecutive annual gain exceeding 20%, as enthusiasm for interest rate cuts and artificial intelligence lifted stocks to fresh highs. Doubts are surfacing on how long this rally can last, however. The recent weakness has raised alarm bells among some investors , with a few predicting a correction in 2025 given the market’s run-up this year. “The failure of stocks to rally during this time has tended to precede bear markets or times when stocks could be purchased at lower prices later in the New Year,” Jeffrey Hirsch, CEO of Hirsch Holdings and editor-in-chief of the Stock Trader’s Almanac, said in a recent note to clients. .SPX YTD mountain S & P 500 performance this year. January’s performance becomes even more important if the market fails to uphold the Santa Claus rally this year. Stocks have had a mixed performance in January in post-presidential-election years, Hirsch pointed out. “January has quite a reputation on Wall Street as an influx of cash from year-end bonuses and annual allocations has historically propelled stocks higher,” Hirsch said. The month has, on average, “started out positive with DJIA, S & P 500, NASDAQ, Russell 1000 and 2000 all logging gains in the first third of the month, but weakness then creeps in. From around the seventh trading day to the end of the month declines have prevailed over the last 21 years.” According to the Almanac, the first five days of January serve as an “early warning system.” This indicator has shown that in the last 18 post-election years, 14 of those full trading years ended up following the direction of the first five days. And the Almanac’s well-known “January Barometer” — which indicates that the S & P 500’s performance in the first full month of the year can predict its results for the remainder of the year — has the same record in post-election years. So, if the S & P 500 rises between Jan. 1 and Jan. 31, stocks should see positive returns for the rest of the year, and vice versa. Hirsch said this full-month barometer has only had 12 major errors since 1950, making for an 83.3% accuracy rate. When all three of these January indicators — the Santa Claus Rally, First Five Days and the January Barometer — are up, the S & P 500 ends the year higher 90.6% of the time with an average gain of 17.7%, Hirsch added. But when one or more is down, the year ends positively only 59.5% of the time with a meager gain of just 2.9%. So without the Santa Claus rally, things might not be looking too great for the year ahead.
‘Santa Claus Rally’ indicator is failing as 2024 ends on sour note