Last Year’s Failed Santa Rally Looms Large as 2025 Setup Looks Similar
With hopes for a Santa Claus rally maybe too high, here's how I'm playing things into year-end.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
Market action on Monday was excellent, with small-caps leading and positive breadth. Precious metals also led, and there was strong speculative action, with a large number of individual stocks moving up more than 10%.
There is consumer sentiment and other economic news due Tuesday, but there isn’t much news flow to upset the market at the moment. The most interesting news is that Novo Nordisk (NVO) will start selling a pill version of its Wegovy weight-loss medicine starting in January. That is having some impact on pharmaceutical stocks.
The big question for market participants is whether the market can keep rising as 2025 comes to an end. The much-anticipated Santa Claus rally period starts on Friday, but traders appear to be front-running the news. There are constant headlines and commentary about a Santa rally, and I can’t help but wonder if we are seeing a setup for disappointment and some "sell the news" action.
In 2024, there was a strong upside move over the three days preceding Christmas. The S&P 500 was flat on the day after the holiday and then dropped in each of the following three sessions, closing the year. The Santa rally was a complete failure.
The setup this year looks similar, with a run-up pre-Christmas and conditions for a sell-the-news in what will be a very thin trading session on Friday.
No one knows what will happen, but the critical point is that a Santa rally is not a certainty, and volatility is likely to be elevated as we wrap up the year. If traders don’t see the rally developing quickly, they will likely move to the sidelines and close up shop for the year. There will also be positioning and tax moves by large funds that have nothing to do with fundamentals and technical setups.
2025 has been a pretty good year for many market participants, and there will be an inclination to protect gains and go out on a high note. With accounts near highs, I plan to be aggressive and not give back gains. I’ll be happy to start the new year with higher levels of cash.
Be cautious — there are many cross-currents at work, and there is no guarantee that we will have a jolly Santa Claus rally.
At the time of publication, Rev Shark had no positions in any securities mentioned.
