The Christmas Rally Begins: What's Next for the US Stock Market?

The "Santa Claus rally" officially commenced yesterday as the S&P 500 index surged by 1.1%, reversing the downward trend witnessed in December. This marks its third consecutive daily increase, countering the losses incurred during last week's sharp decline.

While I have previously discussed the "Christmas rally," I will touch on it briefly this time. The primary focus is now on predicting the trajectory of the US stock market post the Santa Claus rally.

The Santa Claus rally has begun

Many individuals appear to be uncertain about the timeframe of the "Christmas rally."

Typically, it kicks off from the market's opening on the Tuesday before Christmas and wraps up on January 3rd of the following year.

This concept was initially introduced by Yale Hirsch, the creator of the Stock Trader's Almanac, back in 1972. It describes the seasonal tendency for the S&P 500 index to climb during the final five trading days of the year and the initial two trading days of the new year.

Historical data from the Stock Trader's Almanac and Dow Jones market data shows that since 1969, the S&P 500 has, on average, increased by 1.3% over these seven trading days, while the average increase over any seven trading days stands at merely 0.24%.

Why does this trend occur? Financial writer Mark Hulbert suggests that it might be partially attributed to investors' reduced focus on the market during the holiday period.

While many seasonal patterns tend to fade once widely recognized, this mindset may have sustained the Christmas rally phenomenon.

This year's Santa Claus rally has initiated positively. On Tuesday, the S&P 500 index converted its cumulative December decline into a monthly gain of 0.2%. The Dow Jones Industrial Average surged by nearly 400 points, marking a 0.9% increase but is still recovering from a combined 4% drop in December.

The Nasdaq Composite Index saw a 1.3% rise, reflecting a 4.2% cumulative increase for December, chiefly driven by the robust recovery of tech stocks.

What will investors do after the Santa Claus rally?

As I said, this article will not cover investments related to the Santa Claus rally. Those interested can refer to my previous articles.

This time, let's boldly predict the direction of the US stock market after the Christmas rally.

It should be noted that Trump and Vance will be officially sworn in on January 20, 2025. This means that Trump will take office within a dozen trading days after the Christmas rally.

Based on some of Trump's previous remarks, we need to closely monitor whether the market will once again see a "Trump trade" craze.

Cryptocurrencies, financial sectors such as credit cards and insurance, and even Tesla stocks... These are all likely to celebrate Trump's official inauguration, triggering a short - term speculative boom among investors.

Another important point I think is that the three major US stock indices are now near their all - time highs.

Although there has been a correction, the magnitude is clearly insufficient. I'm quite worried that after the Christmas rally, there may be a significant correction in the US stock market.

After the lively holiday season, investors will gradually calm down and think about the current level of the US stock market, as well as whether the current economic environment and inflation expectations can still support the continuous rise of the stock market.

These are the two points I can think of in the short term. What are your predictions for the US stock market after the Christmas rally? You can let me know in the comments section.

Finally, thank you for reading this far. Merry Christmas.