Will a Santa Claus Rally Boost US Stocks Into Year-end?

As December unfolds, the stock market, after a notable year, seems set to continue its upward trajectory, supported by strong recent performances and historical trends.

As the year nears its end, market strategists remain optimistic, predicting the continuation of this year's strong bullish trend. "At this point, you can't deny that everything looks positive," Michele Schneider, Chief Strategist at MarketGauge.com, commented on Yahoo Finance’s Morning Brief, advising investors to "stay with the momentum and stay with the trend."

Now that we've entered December, there are three things for investors to know:

First, December is typically the third-best month for the S&P 500 in an election year, trailing July and August. Given the strong stock performance this November, this trend might seem to be holding true once again. Historically, December has ended higher 83.3% of the time, making it the most likely month to see gains during an election year.

Second, historical data suggests that a rally into the year-end is quite possible. In the past ten instances when the S&P 500 was up at least 20% entering December, the index posted gains in nine of those years, with an average increase of 2.4%. Given that the S&P 500 has already gained 21.57% from the beginning of the year to the end of November, it seems poised to maintain this momentum.

Third, the holiday season often brings a phenomenon known as the Santa Claus rally, characterized by improved market performance in the last days of December and the first few trading days of January. This boost is usually attributed to several factors, including seasonal optimism among investors, positive company news releases, increased consumer spending, and portfolio adjustments by fund managers aiming to enhance their year-end results. These factors often lead to an increase in stock prices during this period.

Looking forward, while next year's gains are expected to be more subdued, sentiment among top financial strategists is increasingly positive. Last week, Binky Chadha, Chief Global Strategist at Deutsche Bank, set a 2025 year-end S&P 500 target of 7,000, echoing the most bullish projections tracked by Yahoo Finance from Yardeni Research. Similarly, Barclays and RBC Capital Markets have set their 2025 targets for the S&P 500 at 6,600, while JPMorgan and Goldman Sachs anticipate a target of 6,500, up considerably from 4,200 over the past two years.

Goldman Sachs noted that Trump's victory, with his campaign promises to lower taxes and implement higher tariffs, could spur inflation and limit the Federal Reserve's ability to cut interest rates.

Scott Sperling, co-CEO of THL Partners, also emphasized the Trump administration's market-friendly policies."One of the things that we're expecting with the new administration is a significant bump in the potential for growth in the overall economy and a reduction in the cost of doing business … the opportunity set for all business is probably greater with the new administration, given the issues that we've seen in the last four years," he said.