The Santa Claus Rally: Will It Make a Comeback or Is 2024 Ending on a Flat Note?

 

With just a few weeks left in 2024, the stock market seems to be caught in a bit of a holiday funk. Despite the November surge that lifted investor spirits, December has brought a harsh reality check. The Dow, S&P 500, and Nasdaq are all struggling this month, losing momentum just when the Santa Claus Rally is supposed to kick in. So, what's going on here, and should we expect any year-end magic?

 

Let's start with the facts. As of last week, the Dow Jones ($DJI) has dropped 4.6% in December, erasing most of its quarterly gains. The S&P 500 ($SPX) and Nasdaq aren't doing much better—both finished the week with consecutive losses, and the Nasdaq saw its first setback in five weeks. This is a far cry from the typical "holiday cheer" we'd usually expect at this time of year.

 

Mark Hackett, Chief Market Strategist at Nationwide, put it bluntly: the "breakdown in breadth" this month signals that the traditional Santa Claus rally might have already been fast-forwarded in November. And, if you look at the numbers, he's not wrong. The big tech stocks—those that make up a disproportionate share of the S&P 500—have continued to shine, but the broader market has been stuck. For example, the Roundhill Magnificent Seven ETF ($MAGS), which tracks the biggest tech names like Apple, Microsoft, and Nvidia, saw a 1% weekly loss last week after a massive rally in 2024.

 

A large part of the market's slump is tied to Fed fears. The central bank signaled it might reduce interest rates less aggressively in 2025, which caught the market off guard. After all, much of the recent stock rally was fueled by the hope of a dovish Fed, so the shift in expectations is shaking investor confidence.

 

The Santa Claus Rally usually runs from Christmas Eve through the first few days of the New Year. Historically, it's been a reliable phenomenon, with the S&P 500 gaining an average of 1.29% during this period since 1950. But last year? It was a bust, with the index falling 0.9% over the seven-day stretch.

 

So, where does that leave us? With the S&P 500 down 1.7% this month and the Dow holding onto a modest 1.2% gain in Q4, the big question is whether there's enough fuel left for a rally in these final weeks. Let's be honest—given the mixed data from the November inflation report and the looming government shutdown, the market is likely to stay on edge.

 

Personally, I think the rally we're all hoping for might be a no-show this year, especially with the Fed's policy uncertainty and broader economic worries. Sure, the numbers from November show that consumers are still spending and inflation is slightly cooling, but that doesn't seem to be enough to override the caution hanging over the market. With a tech-driven rally already baked into stock prices, it's hard to see how much further they can go without fresh, positive catalysts.

 

At this point, I wouldn't be betting on a big year-end surge. After all, as of Friday, the Nasdaq has surged 30.4% in 2024, the S&P 500 is up 24.3%, and the Dow has climbed 13.7% year-to-date. But who knows? Perhaps last week's drop was just setting the stage for a rebound this week.

 

 

What do you think? Are we going to see a last-minute Santa rally, or is the market going to flatline into 2025?