What is the Christmas Rally? And will Santa Claus be there in 2025?

Although often associated with American indices, this upward movement actually benefits the majority of global stock market indices. Do we find out what it's all about?

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Foreword to the Santa Claus Rally 🎅

Unsurprisingly, the Christmas Rally is a stock market phenomenon.

It corresponds to the rise in financial markets generally observed during the last weeks of December (some say early January, others mid-December, in short, there are several schools of thought).
Investors often expect the stock market to grow during this period, based on several historical factors. For example, an analysis conducted by IG Group on the FTSE 100 in London revealed an average gain between 1985 and 2015 of 2.26% for the month of December alone, and that 25 years out of 30 (a).

The potential rise is frequently fuelled by market psychology. An increase observed as early as the beginning of December may encourage investors to believe that the rally is imminent, triggering purchases that self-perpetuate the upward movement.

The phenomenon is more visible on stock market indices such as the barometers FTSE 100, S&P 500, NASDAQ or DAX 40. An increase in these indices will naturally lead to an increase in the stocks that compose them, making high-capitalization ones a target to keep an eye on.

What are the reasons for the Christmas Rally?

Several hypotheses explain this phenomenon.

On the one hand, investors are often in a good mood during the holidays, influenced by the optimism at the end of the year and the expectation of a new cycle. This trend is reflected in increased spending, which leads to higher stock prices.

On the other hand, the end of the year is often synonymous with rebalancing portfolios for investment funds and institutional players. This readjustment, which involves the acquisition of new positions, can increase the number of transactions and help prices.

Thirdly, fiscal incentives come into play in some countries. Investors can sell and buy back shares at the end of the year to optimize their fiscal taxation, which boosts trade volume and, potentially, stock prices.

Will Santa Claus be there in 2025?

Concerns about the crash in early November (attributed in particular to the volatility of Bitcoin, fears of an AI bubble, and the Fed's restrictive signals) have subsided. American economist Ed Yardeni believes that the conditions are currently in place for a rally on Wall Street at the end of the year (c).

Yardeni maintains its forecast, aiming for an S&P 500 at 7,000 before New Year's Eve. If this objective is met, 2025 will end with a performance of +19%, following two consecutive years of growth exceeding +20%. This uptrend could even go further. JPMorgan predicts that the S&P 500 will reach 7,500 in 2026, with the possibility of hitting 8,000 if the FED maintains its rate-cutting strategy (d).

So, the most likely answer is YES! It's time to put your stockings right up the fireplace, because Santa Claus is coming with a full load of presents. 😉