Investors got a piece of coal from Santa Claus. Is this a warning sign for 2025?

Wall Street had another smashing year in 2024, but the stock market ended with a whimper, rather than a bang.

With 2024 in the books, the S&P 500 (SNPINDEX: ^GSPC) gained 23.3%, its second consecutive year with a gain of at least 20%. That has not happened since the 1990s, and the index was able to give this strong performance despite the weakness in the second half of December, which began after the Federal Reserve reduced its forecast for tax cuts of interest in 2025.

That year-end decline may have caught some investors by surprise in a strong year like 2024. In fact, Yale Hirsch, founder of the Stock Trader’s Almanac, first discovered the stock market’s tendency to go up in the last days of the year, and called it “Santa Claus rally. ” While the term is often used to apply to year-end performance, Hirsch gave strict boundaries, defining the relevant period as the last five trading days of the first year and the first two days of trading of the following.Hirsch observed the pattern for the first time in 1972, and also found a correlation between the performance of the market during the Santa Claus rally and its performance the following year.

The last period of Santa Claus ended on January 3, with shares of 0.5%. Here’s what it could mean for the market in 2025.

From 1993 to 2023, the Santa Claus rally accurately predicted the direction of the S&P 500 the following year 23 out of 31 times. Hirsch was confident enough in the forecasting ability of the indicator that he was known to say: “If Santa doesn’t call, the bears can come to Broad and Wall”, a reference to the intersection where the Stock Exchange New York is located.

The indicator has also gained enough popularity that it is often mentioned on Wall Street and in the financial media at the end of the year, although there is no clear reason for the correlation.

It could be because retail investors are more active at the end of the year, or year-end rebalancing activity by managers could foreshadow next year’s performance. It may also reflect the general mood of retail investors or the size of the year-end bonuses, some of which are likely to be invested in the stock market.

With a 74% success rate over three decades, the Santa Claus show is not a hard and fast rule. Just a year ago, the stock market fell by 0.9% during the relevant period, and as we now know, the S&P 500 ended 2024 at 23%. The Santa Claus indicator was wrong.

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