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What No Santa Claus Rally Might Mean for 2025

Santa may have delivered gifts to many this holiday season, but he has delivered nothing but coal for the stock market. During the last five trading days of December and the first two trading days of January, all three major indices have finished in the red during what’s known as the Santa Claus Rally period. During these seven trading days, the S&P 500 was down -1.58%, the Dow was down -1.29% and the Nasdaq was down -2.02%*.

Historically, stocks have been positive 79% of the time since 1950 with an average gain of 1.3% in the S&P 500 during this period1. Experts attribute this holiday surge to corporate bonus time, holiday spending, and a general quieting of the trading desks, news cycle, and earnings reports2. This normally jolly time is often used as an indicator to help predict the returns for the remainder of the new year. 

Negative returns during this period have often historically preceded market downturns1, but not always. The absence of a Santa Claus Rally last year, when the S&P 500 was down 0.9%1, appeared to have no relevance for 2024 as a whole as it just finished in double-digits for all three major indices. The S&P 500 ended 2024 up 24%, which landed the first two-year streak of +20% gains since the late 1990s3. The S&P 500 also had 57 record high closings in 20244. The year also ended with the Dow up 13% and the Nasdaq up 31%.

A better indicator for 2025 may be the January Trifecta, which combines the Santa Claus Rally with the first five trading days of January plus the “January Barometer” (the entire month of January.) Since 1950, when all three indicators are positive, the market has also ended the year positive nearly 90% of the time, with an average gain of almost 18%1.

Regardless of Santa’s absence, experts are expecting a bumpy sleigh ride in 2025 with a new administration and uncertainty around interest rates and inflation ahead. With volatility likely characterizing the markets this year, volatility smoothing tools for an investor’s portfolio may be a winning strategy as opposed to betting on a bull or bear ending to the year. 

Incorporating TrueShares Structured Outcome ETF Series and/or the Quarterly Bull Hedge ETF (QBUL) and Quarterly Bear Hedge ETF (QBER) as accessories to a diversified portfolio is one possible strategy for smoothing anticipated volatility in the market in 2025. Structured Outcome ETFs target a downside buffer to protect against the first 10% of losses without capping market gains (subject to options pricing)**. The Bull and Bear Hedge ETFs use call or put options to potentially create gains in bull or bear conditions, respectively. After all, Santa only comes once a year, but the ups and downs of the market can happen at any time.

  1. https://www.investopedia.com/terms/s/santaclauseffect.asp
  2. https://finance.yahoo.com/video/santa-claus-rally-everything-investors-154044895.html 
  3. https://www.investopedia.com/what-to-expect-from-the-us-stock-market-in-2025-8762883 
  4. https://www.marketwatch.com/story/stocks-are-skipping-the-santa-claus-rally-again-this-year-that-doesnt-bode-well-for-january-ee018756 

*Source: Bloomberg

**Upside participation is measured by an estimated market upside participation rate that is determined once underlying portfolio holdings are established on the first day of trading. Due to the cost of the options used by the Fund, the correlation of the Fund’s performance to that of the S&P 500 Price Index is expected to be less than if the Fund invested directly in the S&P 500 Price Index without using options, and could be substantially less.

For more information on the Structured Outcome ETF Series, visit www.true-shares.com/products/
For more information on the Quarterly Bull Hedge ETF, visit www.true-shares.com/qbul/
For more information on the Quarterly Bear Hedge ETF, visit www.true-shares.com/qber/

The Funds have characteristics unlike many other traditional investment products and may not be suitable for all investors. Investors may experience losses beyond the targeted buffer levels. The Funds do not provide principal protection and an investor may experience significiant losses on its investment, including the loss of its entire investment.

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