Updated: 29-December-25

The Santa Claus Rally is officially underway, and Wall Street is embracing the holiday cheer. Despite lingering consumer pessimism, stocks delivered solid gains last week as strong economic data, AI-driven momentum, and renewed optimism pushed markets to fresh highs.

What Is the Santa Claus Rally?

It refers to the last five trading days of December and the first two trading days of January. Historically, this short window has produced above-average stock market returns.

Why Does It Happen?

There’s no single cause, but common explanations include:

• Holiday optimism and improved investor sentiment
• Lower trading volume, which can amplify upward moves
• Year-end investing, such as portfolio rebalancing and bonus-driven contributions
• Tax planning, with selling largely finished earlier in December

Does It Matter?

Yes. Historically, the market has risen during this period about 70–75% of the time. This seasonal effect has occurred in three‑quarters of years since the 1950s, with positive average returns of 1.4%. Some investors also view a weak or missing Santa Claus Rally as a potential early warning sign for the year ahead. The Santa Claus Rally isn’t guaranteed, but when it shows up, it often signals positive momentum heading into the new year.

Markets Climb Into the Holidays

Last week was a gift for investors:

• S&P 500: +1.40%
• Nasdaq Composite: +1.22%
• Dow Jones Industrial Average: +1.20%
• MSCI EAFE (international stocks): +1.16%

The S&P 500 not only posted its fourth weekly gain in five weeks, but also hit multiple record highs, including new intraday and closing highs on Christmas Eve, the official kickoff of the Santa Claus Rally window.

AI Stocks Lead the Sleigh

Once again, AI-related technology stocks took the lead, driving early-week gains and reinforcing their role as the market’s primary growth engine. Even a brief wobble midweek, sparked by stronger-than-expected economic data, failed to derail the rally.

Why? A Federal Reserve official reassured markets by stating the U.S. is “way behind the curve” on rate cuts compared to other global central banks. That comment eased fears that robust growth would delay policy easing, reigniting bullish sentiment.

Following modest volatility in trading earlier in December, sentiment improved significantly as investors bet on year-end flows. As shown, the CNN Fear-Greed Index has moved materially higher from its readings earlier in the month.

Strong Momentum

Fresh economic data reinforced the market’s confidence:

• Q3 GDP surged 4.3%, the fastest pace in two years
• Industrial production rose 2.5% year over year, the strongest growth since September 2022

Together, these figures paint a picture of an economy that remains resilient, even as investors look ahead to potential rate cuts in 2026.

Thin Volume

While trading slowed into the holiday weekend, the rally stayed intact. Friday’s session was quiet, but the S&P 500 still touched another intraday high, underscoring how seasonal momentum and optimism are outweighing low-volume caution. The Santa Claus Rally is delivering (so far), powered by AI leadership and improving rate expectations. While light holiday trading can exaggerate moves, momentum remains on the bulls’ side as market heads into the new year.

The Week on Wall Street

This Week: Key Economic Data

• Monday: Pending Home Sales.
• Tuesday: Case-Shiller Home Price Index. Minutes of the Fed’s December FOMC meeting.
• Wednesday: Weekly Jobless Claims.

Thursday: NEW YEAR’S DAY—MARKETS CLOSED.

_{Source: Investors Business Daily - Econoday economic calendar; December 26, 2025.
The Econoday economic calendar lists upcoming U.S. economic data releases (including key economic indicators), Federal Reserve policy meetings, and speaking engagements of Federal Reserve officials. The content is developed from sources believed to provide accurate information. The forecasts or forward-looking statements are based on assumptions and may not materialize. The forecasts are also subject to revision.}

Companies Reporting Earnings

• No major companies are reporting earnings this week.

_{Source: Zacks, December 26, 2025.
Companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities. Investing involves risks, and investment decisions should be based on your goals, time horizon, and risk tolerance. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost. Companies may reschedule their earnings reports without notice.}