When Santa Skips Market: Implications for the New Year

S&P 500 Faces Another Holiday Season Slump, Marking Rare Back-to-Back Declines

For the second consecutive year, the S&P 500 is falling short during the historically upbeat “Santa Claus rally,” disappointing investors who typically anticipate a year-end boost. This rare back-to-back decline underscores a challenging stretch for the market, as such outcomes have occurred only twice since 1950, according to Dow Jones Market Data.

The Santa Claus rally refers to the final five trading days of December and the first two of the new year, a period when the S&P 500 has historically gained an average of 1.3% and risen nearly 80% of the time. However, as of Monday’s close, the index has fallen 1.1% since the rally began, marking its weakest performance during this period since the 2015-2016 window.

The Nasdaq Composite has fared even worse, poised to post its fourth consecutive Santa Claus rally decline—a streak that would be its longest on record. While major indexes, including the Dow Jones Industrial Average, recorded impressive gains throughout 2024, the recent slump has some analysts warning of potential turbulence as the new year begins.

Market signals suggest deeper concerns. Breadth—a measure of advancing versus declining stocks—has deteriorated, with the S&P 500 experiencing its longest negative streak in over two decades earlier this month. Momentum stocks, which powered much of 2024’s rally, have started to lose steam. Key technical indicators, including the moving-average convergence-divergence (MACD), have issued sell signals, while high-beta stocks have broken their upward trends.

Despite these signs, a few megacap stocks, such as Broadcom and Tesla, had managed to limit the broader market’s losses earlier in December. However, even these market leaders have turned lower, adding to investor concerns.

Adding to the market’s challenges, rising Treasury yields have weighed heavily on equities. The 10-year Treasury yield recently hit a seven-month high, further dampening sentiment. Although yields eased on Monday, the S&P 500 still closed 1.1% lower at 5,907, unable to reclaim the critical 6,000 level, which some analysts now view as resistance.

With just days remaining in the Santa Claus rally period, analysts are keeping a close eye on market momentum. The lack of typical year-end stability, combined with technical weaknesses, has fueled concerns that January could bring additional selling pressure, leaving investors bracing for a bumpy start to 2025.