When Santa comes to town for investors in late December, it’s usually a good indicator for the coming year.
Christmas is over. Many Americans will soon be removing their Christmas trees, mistletoe, and lights. But Santa Claus may be here to stay, at least in the stock market.
I’m talking about the Santa Claus gathering. This phenomenon tends to cause stock prices to rise during the last five business days of December and maintain momentum until at least the first two business days of January. We may now be at the beginning of such a rally. S&P500 (SNPINDEX: ^GSPC) It will rise further on Christmas Eve.
What will the current Santa Claus rally mean for next year’s stock prices? Here are the predictions for 2026.
Santa Claus is coming to town a lot
However, before arriving at that prediction, it may be helpful to understand how often and why Santa Claus rallies occur. And Santa is coming to town a lot For investors.
Stocks have enjoyed a Santa Claus rally for nearly 80% of the past 50 years. That could indicate that it’s scheduled to happen again this year. The last Santa Claus rally was from December 24, 2021 to January 4, 2022, and the S&P 500 index rose 5%.
The largest Santa Claus rally of the 21st century occurred in late 2008 and early 2009. During this period, the S&P 500 rose 7.4%, a welcome rebound after the October 2008 crash.
Several theories exist as to why Santa Claus gatherings occur relatively frequently. One is that many institutional investors take vacation during the holidays. The idea is that the lack of trading by institutional investors sets the stage for retail investors to have a greater influence on the direction of the market.
This gives us another common explanation for Santa Claus’ gatherings. Many Americans receive a Christmas bonus. Some of them may invest some or all of their money in stocks as buying pressure drives the market higher (more so than usual as institutional investor activity slows down).
naughty and nice
Santa Claus’s rally can bring investors a naughty and wonderful gift in the form of stock market performance over the next year. The good news is that gifts are often great.
From late 1999 to early 2000, the S&P 500 experienced Santa Claus rallies 17 times. By the way, this is less frequent than the long-term average.
The S&P 500 rose in the 12 years following the Santa Claus rally. The profits were usually substantial. In all but one of those 12 years, the index increased by a double-digit percentage. There have been five cases in which the S&P 500 rose more than 20% in the year following a Santa Claus rally.
However, investors sometimes received lumps of coal in their stockings. The most recent example occurred in 2022, when the S&P 500 index fell 19.4% after a 5% Santa Claus rally from late 2021 to early 2022.
Stock price prediction for 2026
It’s too early to know for sure whether the S&P 500 will experience a Santa Claus rally this holiday season. I think it is possible that the higher-than-expected GDP results for the third quarter of 2025 will weigh on stock prices to some extent.
It may seem counterintuitive, but a stronger economy may make it less likely that the Fed will cut rates further next year. Many investors are expecting further interest rate cuts.
However, if a Santa Claus rally occurs, my prediction is that the S&P 500 will rise again in 2026. This means the S&P 500 will rise again, as it has often seen in the past in the years following Santa Claus rallies. However, we do not expect to see double-digit increases for four consecutive years. Santa probably isn’t that generous.
Keith Speights has no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
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