Is Santa On His Way?

Santa Rally

The S&P 500 ended a volatile week with a close above the key support level of 6800 and is now back in positive gamma. This positive momentum, in turn, will likely determine whether there is a Santa Rally into year-end.

You might be surprised to learn that the Santa Rally isn’t magic (spoiler alert).

In reality, the effect results from a combination of reduced liquidity, behavioural optimism, and mechanical year‑end flows, all of which can be heightened during the holiday period.

With fewer institutional traders active into year-end, the improved retail investor mood around the holidays (as witnessed at Thanksgiving) can boost risk appetite.

Reduced liquidity and buy flows can move markets more easily, creating upward pressure on equities.

Additionally, social media and speculative behaviour can further amplify this effect.

Looking back, the Santa Rally has occurred in 70 of the past 97 years. However, history is not a guarantee; sentiment and liquidity can make or break the pattern.

The average Santa Rally return in a positive year is 1.3%.

So, what does Santa actually bring?

Over the last 20 years, Santa has delivered positive gains in the S&P 500 75% of the time.

However, gold is clearly his preference. In all years bar one (2023), there have been positive gains in gold (average gain 2.4%).

However, instead of betting on the pattern itself, many investors use the Santa Rally window as a sentiment gauge.

This window often provides insight into the market structure for the following year.

Historically, when the rally doesn’t materialise, the following year has sometimes been weaker, which is why analysts pay attention to it.

Ultimately, it’s not the rally itself that matters; it’s what its absence reveals.

That said, from a trading perspective, the Santa Rally could just be one of those statistical anomalies that offer shorter-term (though higher-risk) opportunities.

Either way, the balance of probability suggests that a couple of mince pies and some carrots placed strategically around the fireplace won’t go to waste.