What Is the Santa Claus Rally and Why Investors Watch It
What does the so-called Santa Claus rally mean for stocks in 2026?
First up, a little history. The term “Santa Claus rally” refers to the seasonal trend of the stock market going up in the final week of the year, right as Santa makes his rounds.
The History Behind the Santa Claus Rally
It was first coined by a guy named Yale Hirsch. He wrote a book, called the Stock Trader’s Almanac, which focused on stock market history, cycles, and patterns. He is famous for spotting, and naming, many of the market phenomena like the Presidential Election year cycle, the January barometer, and the Santa Claus rally. And, just like a 4-year-old knows Santa Claus is real, investors better believe the Santa Claus rally is real.
Stock Market Performance During the Final Week of the Year
Look at this chart from LPL Research.
This shows the performance of the S&P 500 Index over the final seven days of the year, in every year since 1950. Over the past 74 years, the Index has been positive over that stretch 78% of the time with an average return of 1.3%. For comparison, the market’s typical seven-day average is positive just 58% of the time, and the average is .3%.
What the Santa Claus Rally Signals for January and the Year Ahead
So, what happens next? What does the Santa Claus rally have to say about what will happen in January, and beyond? Well, ol’ Yale Hirsch has a saying for that too. He says, “If Santa should fail to call, bears may come to Broad and Wall.” More simply put, if the final week of the year is positive, there’s a much better statistical chance of positive returns continuing.
Historical Data: Santa Claus Rally vs. No Rally
Here’s another chart from LPL that backs that up.
When the final week of the year is positive, the average January return that follows is 1.4% and the next year averages a 10.4% return. But, when Santa doesn’t come, the January return is slightly negative, and average annual return is still solid, but considerably lower at 6.1%.
Why 2026 Is Still Too Close to Call
This year, at the time of this recording, it’s too close to call. The S&P 500 Index is effectively flat with one day of trading left. So, we don’t know which of these categories 2026 will fit into. But, it’s also worth noting that it’s not 100% right.
When the Santa Claus Rally Gets It Wrong
Let’s go back to the first chart. The final week of the year was negative in 2023 and 2024. And as we know, the following years produced double-digit returns. So Santa doesn’t always offer a crystal ball.
What Really Drives Stock Market Performance
At the end of the day, what matters more than seasonal trends is fundamentals like earnings, monetary and fiscal policy changes, and macro-economic conditions. As we head into 2026, those are all on solid footing.
Final Thoughts Heading Into the New Year
Make sure you check us out in the New Year, as we continue to monitor it. I hope you and your family have a Happy New Year!
Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.
