Should You Really Buy Stocks Before the New Year? Here's What History Says.

The S&P 500 is heading for its third consecutive annual gain thanks to a variety of positive elements -- from excitement about artificial intelligence (AI) stocks to optimism about a lower interest rate environment. The benchmark, after climbing 24% and 23% in the past two years, is on track to advance more than 15%.

Certain elements -- like President Donald Trump's import tariff plan this spring and more recently concerns about a possible AI bubble -- have weighed on momentum periodically. But this hasn't stopped the index from rebounding and advancing, even reaching multiple record highs.

Still, right now, with a little more than three weeks left in 2025, you may be wondering if you really should buy stocks before the new year. Here's what history says.

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What guided the stock market this year

First, though, let's take a quick walk down memory lane and consider what influenced the stock market this year. As mentioned, AI stocks have been a big driver of gains as investors piled into names like Nvidia and Microsoft, companies that are seeing revenue soar thanks to their AI products and services. These stocks are heavily weighted in the S&P 500, so when they and their other big tech peers advance, the movement may drive significant gains in the benchmark.

Another positive element this year has been the Federal Reserve's decision to lower interest rates and suggest more cuts are on the way -- potentially as soon as this Wednesday. There's an 87% probability the Fed will lower rates during the upcoming meeting, according to CME FedWatch. A lower interest rate environment is positive for companies and individuals and generally favors earnings growth -- all of this is great for stock performance.

As I said earlier, though, some elements have weighed on the index this year, and that's slowed momentum -- but only temporarily. Trump's tariffs initially threatened companies' earnings potential, but the president's negotiations with countries on tariff levels and companies' efforts to manage potential tariff impact eased investors' minds. Last month, fears of an AI bubble hurt the performance of tech stocks -- but evidence of strong demand for AI products and services and ongoing earnings growth at AI companies renewed investor confidence.

A look at historical trends

All of this brings us to the present -- and back to our question: Should you really rush to buy stocks now? Let's look to history for an answer.

Over the past 10 years, the S&P 500 has advanced six times in the month of December. Here are the numbers:

So, history shows us that you may benefit by investing in the month of December, as stocks have been known to climb during the last month of the year. There also is a phenomenon known as the "Santa Claus rally," when stocks rise throughout the last five trading days of the current year and the first two trading days of the new year. There isn't one concrete reason behind this movement, but it may be partially due to optimism about a new investing year ahead and moves to reorganize portfolios to prepare for it.

Defying the trend

Of course, as seen in the performances I mentioned above, there are times when the S&P 500 has fallen considerably in the month of December, defying the trend. Investors who just loaded up on stocks may be disappointed on those occasions.

So, what's an investor to do in the early days of December? Invest when you see opportunities -- and think long term. Considering one-month returns over time is interesting, but it says very little about your portfolio's true potential.

Fantastic stocks are known to have bad months or even years here and there, but over time, many of these players and the S&P 500 have delivered significant gains. This means if you keep your eye on your investments' long-term prospects, you can comfortably invest during any month of the year -- and go on to potentially score a major win.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.