Santa Claus Rally? More Like a Holiday Bust in 2024

 

With only one day left in 2024, the market is falling hard on Monday, and it looks like Santa’s rally is nowhere to be found. Historically, the S&P 500 has averaged a 1.3% gain during the last five trading days of December and the first two of January. But this year, the index has dropped 1.12% since Christmas Eve, leaving investors without the usual holiday boost. This marks the second year in a row that the Santa Claus rally seems to have skipped town.

 

 

The Nasdaq Composite has been hit even harder, posting its fourth consecutive decline during this period—its longest losing streak ever for the Santa rally. This is definitely not the way we expect the market to finish the year.

 

 

It’s not just a weak rally; the market’s underlying breadth is also showing signs of trouble. Dow Jones data shows that the S&P 500 saw a stretch of negative breadth lasting 14 days earlier this month, the longest streak since 1999. In simple terms, fewer stocks are rising while more are falling—a worrying sign for the overall health of the market.

 

Since December, mega-cap stocks like Tesla ($TSLA) and Broadcom ($AVGO) have helped prevent steeper declines in the S&P 500 and Nasdaq. However, even these stocks are starting to lose steam. BTIG technical strategist Jonathan Krinsky pointed out that the momentum trade that had powered the market higher in 2024 has recently shown signs of rolling over, which could spell trouble in the weeks ahead.

 

As of Friday, only 58% of S&P 500 stocks were trading above their 200-day moving average, the weakest reading all year, Krinsky noted. Not exactly a vote of confidence.

 

The broader market looks increasingly vulnerable, with many momentum stocks losing their upward momentum. It feels like the market’s energy is starting to run dry.

 

 

Rising Treasury yields are also adding pressure on stocks. The U.S. 10-year Treasury yield recently reached its highest level in more than seven months, a sign that equities might be in for trouble. Even though yields have pulled back slightly, the weakness in stocks persists, suggesting further struggles could be on the horizon.

 

The S&P 500's failure to reclaim the 6,000 level is another technical red flag. If that former support level now acts as resistance, it could delay any meaningful rebound.

 

 

While 2024 has been a strong year overall, with the S&P 500 up about 24%, the recent market weakness raises concerns about a potential correction in the first quarter of 2025.

 

Tom Essaye, founder of Sevens Report Research, points out that the market’s recent technical developments—especially the stalled rebound after the Federal Reserve meeting—do not bode well for the near-term outlook. Likewise, Jonathan Krinsky from BTIG highlights that momentum stocks have started to break their uptrend, which could signal more trouble ahead for the broader market.

 

Additionally, high-beta stocks, which tend to be more volatile, have also started losing momentum. One popular technical indicator, the moving-average convergence divergence (MACD), issued a weekly sell signal for the S&P 500 at the end of last week—its first since September.

 

Individually, none of these signals is a red flag, but combined, they suggest that investors may not yet be done taking profits. This could mean more selling pressure is coming in the near future.

 

It’s also possible that some of the recent selling is due to investors pre-emptively cashing in on this year’s winners before heading into the new fiscal year. All of this points to a potentially rough January.

 

So, is this just a typical holiday slump, or are we seeing the start of a deeper pullback heading into 2025?

 

What do you think?