Every year, as December rolls in and the holiday lights start to appear in homes, a curious phenomenon emerges in the stock market: the Meeting of Santa Claus. If you’re an investor, it’s kind of a weird, seasonal pattern to understand, both in terms of context and timing your year-end investment decisions.
So what is it, exactly? The Santa Claus rally refers to the tendency of the stock market, usually measured by the S&P 500, to post higher returns during the last five days of the year and the first two trading days of the new year. That said, as a strategic investor, you don’t need to treat those dates as strict limits.
Historically, it has been remarkably consistent. According to data going back decades, the S&P 500 has gained about 1-1.5% during this period.
That may not sound like much, but in a market that struggles to move more than a few percent in a single week, it makes sense. And for long-term investors, knowing the historical context of these seasonal increases can help expectations and reduce the urge to overtrade during the holidays.
Why Does the Santa Claus Rally Happen?
The meeting of Santa Claus does not have a single, universally agreed definition, but several plausible theories have emerged over the years:
- Holiday Hope: The end of the year is a time of happiness, bonuses, and good vibes. Investors may feel more confident and willing to buy stocks, which may push prices up. Unfortunately, for those who are on FIRE, there is no check or big year-end bonus to count on. So we’re counting on all of you to fund your IRAs, 401(ks), SEP-IRAs, and more!
- Tax Loss Harvesting: Towards the end of December, investors tend to sell underperforming stocks to offset capital gains elsewhere. After this reduction in selling pressure, buying resumes, sometimes causing stock prices to fall.
- Rebalancing the portfolio: Many institutional investors and fund managers rebalance portfolios at the end of the year. This activity can create buying pressure in certain sectors, boosting overall market performance. This practice is often called window dressing: managers add high-performing stocks, sometimes late in the year or in small amounts, so they can demonstrate strong holdings to their investors.
- Small Business: Holiday periods often see low trading rates, which can exaggerate market movements up or down. Even modest interest rates can lead to significant price increases.
- Psychology and Expectations: Some argue that the Santa Claus convention is, at least in part, a self-fulfilling prophecy. Traders and investors expecting a year-end rally may buy early, creating the rally itself.
Origin of the Term
Name Meeting of Santa Claus it was popularized in the 1970s by Yale Hirsch, the group’s founder The Stock Trader’s Almanac. Hirsch saw a seasonal pattern going on and, with a nod to the holiday season, called it the Santa Claus rally. The expression stuck because, like Santa, the market seems to bring gifts at the end of the year, even if, in fact, it is a mixture of intellectual, technical aspects, and historical aspects.
Since then, analysts have followed the incident closely. Although the market doesn’t always rally, historical data shows that it happens often enough to warrant attention.
Below is a chart highlighting the historical performance of the S&P 500 during the last five trading days of the year and the first two trading days of the new year since 1950. What do you notice?
Frequency of Santa Claus Rally
History shows that since 1950, the market has hosted a meeting of Santa Claus 77.33% of the time. Perhaps most interestingly this year, there has never been a period of three years in a row without one.
About 23% of the time the S&P 500 goes down, it’s because of things like recessions, national disasters, or major market shocks. But long-term data suggests that, even for outsiders, the odds are tipped in favor more often than not.
It is also important to note that the size of the rally varies. Some years produce small gains; others see a big jump. For example, at times following the decline of capital marketsthe Santa Claus rally has occasionally brought a mid-to-high single-digit move in just a few days, though this is the exception, not the rule.
Just look at what happened in 2008. The S&P 500 fell 38.5% when the global financial crisis began. However, it saw a Santa Claus rally of 7.45%, followed by a 23.5% rebound in 2009.
How Investors Can Use This Information
Understanding the Santa Claus rally is not timing the market perfectly, which is impossible. It’s more about context, perspective, and sound decision-making:
- Don’t be afraid: If your portfolio lags in December, keep in mind that historical trends suggest that small increases tend to come in the last week of the year.
- Mind Your Bias: Just because gatherings happen often does not mean they are guaranteed. Treat this as a useful historical pattern, not a crystal ball.
- Consider Rebalancing: The end of the year can be an opportunity to rebalance portfolios or take advantage of tax losses or return your asset allocation to target. Meeting Santa Claus is a bonus, but you shouldn’t tell your core strategy.
- Confidence to buy: If the market has already adjusted, especially when we enter the season of the Santa Claus meeting, it can give you more confidence to spend money.
While it doesn’t guarantee profits, understanding its patterns can help investors make calm, rational year-end decisions. It may also help to avoid emotional trading during a season of low trading volumes.
Believe in this year’s Santa Claus Rally
This year, I decided to make a pattern. The S&P 500 went through a nearly 19% correction from February to April 2025, followed by another 6% decline from October to November. Then, on December 17, I bought the latest mini-dip, just like I did during the pullback, because I heard the meeting of Santa Claus or at least the repetition, was possible.
Given there there has never been three years in a row without a Santa Claus meetingit felt like it should. The fact that the market delivered another minor correction on December 17 feels like a gift to those waiting to put money into work. Whether these investments ultimately prove profitable, only time will tell.
A lot of planting is psychological. The more courageous we are to invest consistently over the long term, the richer we tend to be. If understanding the convention of Santa Claus helps us put money to work with greater confidence, that would be great.
Merry Christmas and happy holidays. May your investment portfolio give you the gift of big returns so you don’t have to work hard in the new year!
Stay on Top of Your Finances This Holiday Season
Just as I took action during this year’s market dip heading into the Santa Claus rally, staying on top of your finances can give you an edge in the long run. It’s the one tool I’ve relied on since I quit my day job in 2012 Enable a free financial dashboard. It helps me track value, investment performance, and cash flow so I can make confident moves when opportunities arise.
If you haven’t updated your portfolio in the last six to twelve months, the end of the year is a great time. You can run a DIY test or schedule a A complimentary financial review with Empower. Either way, you’ll get insights about your allocations, risk exposure, and investment habits that can help your long-term returns.
Investing consistently, tracking your finances, and acting when the timing is right—like during a market crash—allows small moves today to compound into meaningful wealth tomorrow. Think of it as your year-end gift to your future self.
Empower is a long-term partner of Financial Samurai. I have used their free tools since 2012 to track my finances. Click here to learn more.
If you like stock market commentary and real-time insights into what I’m doing with my investments, you can subscribe free weekly newspaper here. I have been investing my own money since 1996 with the goal of generating good returns and increasing freedom.
