Discover how this year’s Santa Claus Rally fared and learn about the impact it could have on the stock market in 2025.
With the new year already in full swing and 2024 firmly behind us, we now know for sure that – for the second year running – Santa Claus chose not to leave any presents for investors to unwrap over the festive period.
Yes, that’s right, there was no Santa Claus Rally again this year, despite a strong 12 months in terms of overall stock market performance. So why exactly did the stock market run out of steam at the end of 2024? And what does this mean going forward into this year?
We will try to answer these key questions below so you can get a better understanding of what is happening in the markets right now.
Stocks struggled to thaw
While New York’s Central Park enjoyed its first white Christmas in 15 years, the stock market appeared to feel the chilly conditions more than most. On the final day of the Santa Claus Rally period (3 January), each of the major indexes closed lower for the week, with the Dow Jones Industrial Average down 0.6%, and the S&P 500 and the Nasdaq both down 0.5%.
Hopes for the seasonal rally were dashed early on, partly due to a trend of four consecutive down days for the S&P 500 to close out the year, marking the first time this has happened in 58 years.
This is in complete contrast to the yearly figures, with the S&P 500 recording another impressive 23.31% increase, following on from a gain of 24.2% in 2023. The Dow also grew last year, albeit by a much lower 12.88%, while the Nasdaq trumped the lot, adding 28.64 by the year’s end.
Why did Santa not deliver?
Pinpointing the losses on a single cause is tricky, but a combination of different factors each played a role. First up, there were huge selloffs after Federal Reserve (Fed) officials lowered their predicted number of rate cuts for 2025.
Then, a rise in US Treasury bond yields, stemming from the Fed’s scaled back interest rate forecast and Trump-related concerns surrounding future tariffs, led to a global decline in stocks.
Add into the mix the usual end-of-year tax positioning and investor uncertainties about the new year and you had a recipe for failure, as far as Santa Claus was concerned, with risk-off sentiment dominating.
The future outlook for 2025
As always, it’s tricky to predict exactly what’s in store for stocks in the months ahead. Of course, the markets don’t understand the concept of a calendar and don’t simply reset or start afresh at the beginning of a new year.
Maybe we shouldn’t read too much into the failed Santa Claus Rally that we experienced again this time round. After all, we didn’t get one in 2023 but stocks still went on to surge higher over the next 12 months.
Indeed, analysts are mostly positive in their outlook for 2025, although some uncertainty does remain, particularly around the incoming Trump administration’s policies, which have the potential to heighten market volatility and further push up inflation.
Meanwhile, Wall Street remains generally optimistic, with a growing consensus maintaining the view that AI will continue to be a key driver of stocks, retaining its role as the main support beam for the US stock market.
You may remember the major indexes breaking new records in 2024, with the AI-powered Magnificent Seven stocks of Apple, Nvidia, Microsoft, Amazon, Meta, Alphabet, and Tesla responsible for over half of the S&P 500’s yearly gains last year.
Currently, there are no signs of this halting any time soon, and with AI demand set to grow as the weeks and months progress, expect this trend to sustain its ongoing upward momentum.
In the meantime, don’t forget to keep updated with the very latest developments by visiting our dedicated Market News section.
