Stocks are poised to close out a strong year with investors hoping for a traditional “Santa Claus Rally” – a sustained increase in the market during the final trading days of December and the first of the new year. The S&P 500 and Dow Jones Industrial Average are currently trading near record highs, bolstered by recent positive economic data, including a stronger-than-expected 4.3% GDP growth in the third quarter. Market participants will be watching closely as the rally period begins today, December 24th, with reduced trading hours expected through the Christmas holiday.
The S&P 500 closed at a new record high of 6,909.79 points on Tuesday, December 24th, and is currently just below its all-time intraday peak of 6,920.34. The Dow Jones is within 260 points of its record closing high, set on December 11th at 48,701.40 points, having reached a year-to-date high of 48,886.86 points on December 12th.
Investors are closely watching for the potential of the traditionally strong “Santa Claus Rally.” This period, coined by Yale Hirsch, founder of the Stock Trader’s Almanac in 1972, encompasses the last five trading days of the year and the first two of the new year. This year, it runs from the market open on December 24th through January 5th.
According to Adam Turnquist, Chief Technical Strategist at LPL Financial, the S&P 500 has historically gained an average of 1.3% during these seven trading days, delivering positive results 78% of the time. He notes that the typical market average return is just 0.3%, with a positive rate of 58%.
“The year-end momentum suggests a favorable setup for a positive Santa Claus Rally, a historically bullish signal for January and the coming year,” Turnquist stated in a note to clients. “While overall market breadth remains somewhat limited for an index trading near all-time highs, the trend is moving in the right direction, driven by a rotation into cyclical sectors. A close above the S&P 500’s December high could pave the way for the next leg higher, above the 7,000 level.”
On Tuesday, indices closed higher following the release of key economic data. The Department of Commerce reported a U.S. gross domestic product (GDP) growth of 4.3% for the third quarter, exceeding the Dow Jones consensus estimate of 3.2%. The report, delayed due to a government shutdown, initially led traders to scale back expectations for early interest rate cuts next year. However, futures trading still indicates expectations for two rate cuts by the end of 2026, according to CME’s FedWatch tool. The GDP figure provides a snapshot of the U.S. economy’s strength heading into the new year.
Former President Donald Trump has publicly questioned the market’s reaction to the Federal Reserve, stating he expects any appointee he makes to the institution to lower rates even during periods of strong market performance. “”I want to have a market like we’ve never had in many decades,” he posted on social media, “a market that goes up with the good news and down with the bad, as it should, and as it was.””
Investors should note that the New York Stock Exchange will close at 1:00 PM ET (19:00 Spanish peninsular time) on December 24th and will remain closed on Thursday, December 25th, for Christmas. Trading will resume on Friday with regular hours.
