A Surprising End to 2024: What It Means for the Market in 2025
The stock market wrapped up 2024 with a remarkable 23.3% gain, marking its second consecutive year with a gain of at least 20%. This feat hasn’t been achieved since the 1990s. However, the market’s performance in the final days of December was lackluster, with the S&P 500 experiencing a decline after the Federal Reserve scaled back its forecast for interest rate cuts in 2025.
The Santa Claus Rally: A Reliable Indicator?
Yale Hirsch, founder of the Stock Trader’s Almanac, discovered the stock market’s tendency to climb in the final days of the year, which he dubbed the “Santa Claus rally.” This phenomenon typically occurs during the last five trading days of the year and the first two trading days of the following year. Hirsch found a correlation between the market’s performance during this period and its performance the next year.
A Mixed Bag: The Santa Claus Rally’s Track Record
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. While this indicator has gained popularity, there isn’t a clear reason for the correlation. It could be attributed to retail investors being more active at the end of the year, year-end rebalancing activity by managers, or even the general mood of retail investors.
What’s in Store for 2025?
Despite the lack of a Santa Claus rally this year, analysts are more bullish on the market, with a consensus target for the S&P 500 above 6,600, or a gain of more than 12%. They’re betting on a continuation of the AI boom and friendlier business policies from the Trump administration. However, valuations in the stock market remain high, and tariffs, mass deportations, and other policies from the new administration could affect the market.
A Word of Caution
While the lack of a Santa Claus rally shouldn’t prompt investors to sell their stocks, it’s essential to keep the predictive track record of the indicator in mind when preparing your portfolio and expectations for a potentially volatile new year.
Expert Insights: 10 Stocks to Watch in 2025
Before investing in the S&P 500 Index, consider the top 10 stocks identified by The Motley Fool Stock Advisor analyst team. These stocks have the potential to produce monster returns in the coming years. With a proven track record of success, Stock Advisor provides investors with a blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month.
Leave a Reply