Year-End Rally Season: Will the Santa Claus Effect Deliver for Markets in 2025?

The December surge is a well-documented phenomenon in financial markets. Between the final trading week of December and the opening days of January, equity markets historically experience sustained upward momentum—a pattern famously dubbed the Santa Claus Rally. For the S&P 500, this seasonal strength is backed by compelling statistics: over the past four decades, the index has climbed in December 74% of the time, posting an average monthly gain of 1.44%. Only November has outperformed it as a month for equity returns.

This December advantage isn’t confined to North America. European bourses demonstrate even more impressive December performance. The Euro Stoxx 50, tracking the largest Eurozone corporations since 1987, has delivered an average December return of 1.87%—trailing only November’s 1.95%. What’s particularly telling is the consistency: the benchmark has closed December in positive territory 71% of the time, a win rate that exceeds virtually every other month on the calendar.

What drives this predictable year-end rally? Market professionals attribute the surge to multiple overlapping forces. Seasonax analyst Christoph Geyer points to institutional mechanics: as the calendar winds down, portfolio managers execute “window dressing” tactics—strategically buying strong performers and high-momentum stocks to improve their year-end track records before presenting results to clients and stakeholders. This coordinated buying creates its own momentum.

Psychological factors compound the effect. The festive atmosphere surrounding year-end naturally elevates investor sentiment and broadens risk appetite. These softer factors interact with technical conditions: with the Federal Reserve signaling rate cuts and quantitative tightening nearing its conclusion after nearly three years, liquidity conditions are shifting favorably for equity buyers. Currency markets, including strength in the US Dollar relative to the Canadian Dollar and other peers, reflect the broader capital flow dynamics underpinning this risk-on environment.

Will 2025 break the pattern? Market watchers remain split. Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, cautions that this year may be different. U.S. stocks have already defied seasonal expectations through much of 2025, she notes, suggesting the Santa Claus phenomenon could disappoint.

Tom Lee, co-founder of Fundstrat Global Advisors, counters with optimism. He argues the liquidity backdrop is primed for a dramatic rally into year-end, with fund managers positioned to execute aggressive catch-up buying if performance gaps emerge. Lee forecasts the S&P 500 could experience a notable melt-up as year-end approaches, driven by both technical conditions and behavioral responses from institutional investors seeking to avoid underperformance.