After 2 straight misses, this year's 'Santa Claus rally' is off to a solid start. Why it matters for investors.

By Isabel Wang

Santa skipping Wall Street for a third year in a row would be unprecedented, data show

Stocks have never had a negative "Santa Claus rally" period for three years in a row.

U.S. stocks have never seen three negative "Santa Claus rally" periods in a row. So after two straight misses, history says the odds favor a comeback this year.

The historically strong Santa rally period, which includes the final five trading sessions of each year and the first two of the following year, officially kicked off on Wednesday. So far, stocks are doing OK: Despite some mild weakness on Friday, the S&P 500 SPX is still up 0.2% since this year's Santa period began.

Since 1950, the S&P 500 has averaged a gain of nearly 1.3% and closed higher 76% of time during the seven-trading-day stretch. The Dow Jones Industrial Average DJIA has registered an average gain of over 1.3%, while the Nasdaq Composite COMP has recorded an even better 1.7% average return in the same period, according to Dow Jones Market Data (see table below).

SOURCE: DOW JONES MARKET DATA

While investors are watching closely to see whether Santa Claus returns to the market this year amid thin holiday trading and a lack of major catalysts to move stocks, historical patterns suggest the stakes for a rally this year are particularly high. Stocks have posted negative returns during the past two Santa rally periods, but Santa has never failed to appear on Wall Street for three years in a row.

"These seven days tend to be in the green, so that is expected. But we actually haven't seen Santa the past two years, which is akin to coal in your stocking for two straight years. The good news? We've never had a negative 'Santa Claus rally' period for three years in a row," said Ryan Detrick, chief market strategist at Carson Group.

To put those historical patterns in context, the chart below shows every Santa Claus rally period since the tech-bubble implosion in 1999, along with how stocks performed in the following January, first quarter and full calendar year.

"When Santa comes, the chances of continued solid times are high, while when Santa takes a break and stays in the North Pole, then trouble is higher," Detrick said in a Tuesday client note. "Even last year for example, Santa didn't come and the first quarter of 2025 was a rough one for investors, and we all remember what happened in April after 'liberation day.'"

SOURCE: CARSON INVESTMENT RESEARCH, FACTSET

Indeed, the stock market's year-end rally in 2024 raised doubts about the credibility of the Santa rally, with stocks not only finishing the period lower but falling on every trading day between Christmas and New Year's Day - a historic first for the large-cap benchmark index, noted Yehuda Leibler, president and chief technology officer at ARX Advisory.

Leibler said that whether the absence of a Santa rally in 2024 represents a mean-reversion opportunity this year is still impossible to know in advance, but the market has already shown signs of recovery earlier this week, with the S&P 500 hitting a new all-time high on Christmas Eve.

"Markets don't follow calendars; they follow fundamentals, policy and sentiment. The Fed's rate path, AI-driven earnings expectations and Treasury yields BX:TMUBMUSD10Y will matter far more for 2026 than whether stocks managed to eke out gains in the final week of December," Leibler told MarketWatch on Friday.

"Use the 'Santa Claus rally' as a sentiment indicator that occasionally provides useful signals amid the noise. Just don't mistake it for a crystal ball," he added.

See: Wall Street's gift to investors often arrives a day after Christmas

U.S. stocks were mostly lower in early-afternoon trading on Friday. The S&P 500 was falling 0.1%, to trade near 6,923, while the Dow was off 0.2% and the Nasdaq was little changed, according to FactSet data.

-Isabel Wang

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12-26-25 1304ET