Year-to-date, Wall Street is in great shape, with the S&P 500 Index up about 24% in 2024. Now, as we enter the final stretch of the year, the Santa Rally is about to set in. The “Santa Claus Rally” refers to the stock market’s tendency to rise during the final trading days of December and the first two trading days of January.
However, historical data suggests that the Santa Claus rally occurred from December 15th until January 5th. In other words, if history is any guide, the time frame for the Santa Claus rally has already begun. However, Wall Street has experienced a slump so far, with the SPDR S&P 500 ETF Trust SPY down 3.3% over the past five days, mainly due to less-dovish cues from the Fed. Let’s see if the rally gains momentum next week.
Historically, this period has yielded positive returns approximately 80% of the time, with the S&P 500 averaging a gain of about 1.4% during these seven days, per Investopedia. Factors like investor optimism, institutional activity and tax considerations are held responsible for this pickup in equity rally.
The holiday season often brings increased optimism among investors, leading to more buying activity. Meanwhile, fund managers might adjust portfolios before year-end, influencing stock prices. And a slowdown in tax-loss harvesting, which can depress prices earlier in December, also plays a role in pushing up stock prices at December-end.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Historically, Wall Street tends to perform strongly in December. Specifically, the S&P 500 has exhibited positive returns in December 74% of the time since 1928, which is more frequent than any other month.
With just a handful of days remaining until Christmas and sentiments still strong (though a less-dovish Fed for 2025 may slightly dampen the festive mood on Wall Street), it seems likely that a moderate Santa Rally could take shape.
Above-consensus retail sales growth further evidenced economic resilience. The U.S. economy expanded at an annual rate of 3.1% from July through September, driven by strong consumer spending and increased exports.
Against this backdrop, we have highlighted a few exchange-traded funds (ETFs) likely to gain from the Santa Rally in 2024.
Technology – Roundhill Magnificent Seven ETF (MAGS)
The “Magnificent Seven” tech giants—Tesla, Amazon, Alphabet (Google), Meta Platforms (Facebook), NVIDIA, Apple, and Microsoft—have shown significant growth in 2024. Collectively, they’ve surpassed an $18 trillion valuation, indicating strong market confidence. Analysts expect these companies to continue dominating due to their fast-growing earnings, though risks include valuation pullbacks and regulatory scrutiny.
