By Ben Norris, CFA, Senior Investment Strategist, Vice President
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In 1972, the Stock Trader’s Almanac popularized the idea of a “Santa Claus Rally.” The general premise is that the stock market is likely to see positive performance during the last five trading days of the current year and the first two trading days of the coming new year. Looking back to 1950, stocks have rallied an average of 1.3% over this period and have seen positive returns nearly 80% of the time. For some context, the S&P 500 (SPX) has averaged annual price returns of 8.3% a year over the same span and has seen positive annual returns around 70% of the time. Over all other seven-day trading periods, SPX has averaged a gain of just 0.24%. Simply put, it is in investors’ best interest to have money in the market during the Santa Claus Rally. We’re right in the middle of the 2024-25 rally, and Santa has some work left to do if he’s going to deliver the goods.
The rally got off to a hot start on Christmas Eve, with SPX gaining 1.1% during a shortened trading session that saw light volume as traders prepared to take Christmas off. The next two days were less encouraging—the day after Christmas saw SPX finish slightly lower, while Friday undid Christmas Eve’s progress with an offsetting loss of 1.1%, leaving the index with a loss of 0.1% with three rally days gone, and four to go. Obviously, a lot can happen over four trading days but the last several weeks have been marked by heightened volatility and a sense that the market could be due for a pause before continuing its march higher in 2025. Further, there is a distinct lack of market-moving data expected over the next several days, especially as investors look for data that could alter the U.S. Federal Reserve’s (Fed) policy path. If Santa does fail to deliver a rally over the next four trading days, history shows that stocks are likely to experience some subsequent weakness. Stocks were flat or down in years following a missed Santa Claus Rally. Years like 1994, 2005 and 2015 are good examples of flat performance following a missed rally, while 2000, 2008 and 2016 are examples of years where markets saw at least a correction. We recommend that investors capitalize on any near-term weakness by putting money to work if they can.
As we near 2025, I thought it would be helpful to provide a quick recap of the wild ride that 2024 has been. Here is a non-exhaustive and not entirely market-related list of things that captured our attention this year. In January, a door panel blew out of an Alaska Airlines flight, resurfacing the many issues facing Boeing. The same month, the SEC voted to allow trading of Bitcoin exchange-traded funds, marking a new era for cryptocurrency as a legitimate asset class. February saw the Kansas City Chiefs win Super Bowl LVIII, defeating the San Francisco 49ers 25-22. Nvidia’s market capitalization eclipsed $2 trillion for the first time on February 28. In late March, a container ship struck the Francis Scott Key Bridge, causing a complete collapse. The catastrophe became symbolic of the need for significant investment in America’s infrastructure. Just two days later, Sam Bankman-Fried, the former founder and CEO of FTX, was sentenced to 25 years in prison for his role in defrauding the firm’s customers and investors.
More than 30 Americans across the country looked toward the sky on April 8 to observe a rare occurrence—a total solar eclipse. A similar eclipse visible across much of the United States won’t happen again until the 2040s. Later in April, the U.S. House of Representatives passed a $95 billion aid package for Ukraine to help in its conflict with Russia. The Dow Jones Industrial Average (DJIA) surpassed the 40,000 level for the first time in May as bullish investors prepared for the Fed to begin cutting rates. Nvidia’s market capitalization eclipsed $3 trillion for the first time on June 5, making it the third-largest publicly traded company after Apple and Microsoft. Just under two weeks later, Nvidia would become the largest public company after it reached a market capitalization of $3.34 trillion. June 27 was a turning point politically–the first presidential debate between former President Trump and President Biden was the beginning of the end of Biden’s candidacy.
President Trump survived an assassination attempt at a campaign event in Pennsylvania on July 13. Trump was quickly rushed from the stage by Secret Service agents, but not before a now iconic image of Trump with his ear bloodied and fist raised is captured by photographers. Just over a week later, President Biden ended his candidacy for president after his poor debate performance and apparent cognitive decline led to calls from fellow Democrats to clear the way for a younger, more electable candidate. Biden’s withdrawal opened the path for Kamala Harris to become the Democratic nominee for president. The last day of July and first of August marked significant developments in the conflict between Israel and Hamas after Israel killed a senior Hezbollah official and then announced a targeted strike had killed Hamas’ political leader the following day. The same day, the United States and Russia engaged in the largest east-west prisoner swap since the Cold War.
On August 6, Kamala Harris selected Tim Walz as her running mate at a campaign rally in Pennsylvania and formally accepted the Democratic Party’s nomination for president later in the month. The 2024 Paris Olympics wrapped up in mid-August with the United States leading both the gold and overall medal count. September 10 brought the first and only debate between former President Trump and Vice President Harris. Less than a week later, the Secret Service foiled a second assassination attempt on Trump, who was unharmed. On September 18, the Fed cut interest rates by 0.50%, kicking off the first Fed easing campaign in four years as policymakers cited easing inflation and a cooling job market for the larger-than-expected cut. Hurricane Helene devastated the southeastern United States during the last week of September, with some sources estimating total damages exceeding $50 billion. Helene was one of several significant climate disasters that affected Americans in 2024.
The fourth quarter began with an Iranian missile attack on Israel that heightened fears of an escalating conflict in the Middle East. At the same time the Vice-Presidential debate between Tim Walz and JD Vance was squarely focused on policy, a stark difference from the debate between their running mates. Later in October, Israel launched a counter-offensive, attacking Iran and deepening concerns that the situation in the Middle East could turn into an all-out war. Nvidia began November by being added to the DJIA as a replacement for former semiconductor industry bellwether Intel. Nvidia’s market cap rose to an all-time high of $3.6 trillion on the news. On November 5, former President Trump became President-Elect Trump after defeating Vice President Harris by a wider margin than most pollsters projected. Republicans gained control of the Senate and retained control of the House of Representatives. The election results made it clear that average citizens remained focused on issues like inflation and immigration. Just a few days later the Fed once again cut rates, but by a more measured 0.25%. The combination of easing monetary policy and post-election certainty led to a massive stock rally that lifted all sizes and styles domestically. SPX gained nearly 5% in the week following the election. November ended on a high note with the DJIA and SPX finishing near all-time highs as optimism for a Trump presidency combined with a renewed confidence in the artificial intelligence trade led to broad market participation. Small-cap stocks, represented by the Russell 2000, gained more than 10% during November.
On December 4, UnitedHealthcare’s CEO was murdered in an attack apparently motivated by disillusionment with the American health care system. The attack sparked a broader conversation around subjects like morality, corporate responsibility and vigilantism. The Assad regime’s reign over Syria ended in early December as rebel forces captured Damascus, ending 50 years of authoritarian rule. Taylor Swift’s “Eras” tour concluded with a show in Vancouver. The tour grossed $2 billion in sales after reaching five continents over two years and 152 shows. Two days before Christmas, auto manufacturers Honda and Nissan announced their intention to merge in 2026. If the merger is completed, the new company would be the third-largest auto company in the world after Toyota and Volkswagen. On December 29, former president Jimmy Carter died at age 100. Carter was awarded the Nobel Peace Prize in 2002 for his decades of “untiring effort to find peaceful solutions to international conflicts, to advance democracy and human rights, and to promote economic and social development.”
Markets are ending the year on an uncertain note with elevated volatility going into 2025. The Fed’s recent admission that it may keep interest rates higher for longer in response to strong economic growth and stubborn inflation has investors proceeding with caution during the last few trading days of 2024. Still, returns for domestic markets have exceeded expectations year-to-date with SPX, DJIA and the Nasdaq Composite likely to notch gains of at least 25%, 15% and 30%, respectively. Back-to-back years of 20%+ gains for SPX have occurred just a handful of times in the index’s history. Unfortunately, history can’t tell us much about what to expect in 2025. In the three times that the index has seen this setup, the next year’s returns have been -39%, +3% and +31%. I can comfortably guess that 2025 will end up somewhere in that range. I am generally optimistic about markets over the next 12-18 months. While stock valuations are somewhat demanding, they are supported by accommodative monetary policy, good economic and earnings growth prospects, and an incoming administration that has promised to ease regulatory and tax burdens.
In closing, I want to thank all of you for taking the time to read whatever my colleagues and I come up with each week. We hope that you learned a few things and maybe thought about something from a different perspective than you had before. We’re looking forward to 2025 and hope you all have a wonderful new year.
| TIME (ET) | REPORT | PERIOD | MEDIAN FORECAST | PREVIOUS |
| MONDAY, DEC. 30 | ||||
| 10:00 am | Pending Home Sales | Nov. | 0.7% | 2.0% |
| TUESDAY, DEC. 31 | ||||
| 9:00 am | S&P Case-Shiller Home Price Index | Nov. | — | 4.6% |
| WED., JAN. 1 | ||||
| New Year’s Holiday | ||||
| THURSDAY, JAN. 2 | ||||
| Initial Jobless Claims | Dec. 28 | 225,000 | 219,000 | |
| Construction Spending | Nov. | 0.3% | 0.4% | |
| FRIDAY, JAN. 3 | ||||
| ISM Manufacturing | Dec. | 48.1% | 48.4% |
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market