December Santa Claus Rally: New highs in sight for US and European stocks?

One week into December, markets are expecting the Santa Claus Rally.

The so-called Santa Claus Rally refers to the sustained uptrend found during the last five trading days of December and the first two trading days of January. Historical data show that U.S. stocks tend to rise during this period. Increasingly, the term is now also generally used to refer to the seasonal rise in U.S. shares in December.

In 74% of the time over the past 40 years, the S&P 500 Index rose in December, with an average monthly return of 1.44%, second only to November.

This seasonal uplift extends across the Atlantic as well, with European indices sometimes even outperforming their U.S. counterparts.

Since its inception in 1987, the Euro Stoxx 50—the benchmark index for Eurozone blue-chip stocks—has delivered an average December gain of 1.87%, just behind its 1.95% average for November, making December the second-best-performing month of the year.

"Even more striking is the probability of gains — the index has ended December higher 71% of the time, far surpassing other months.

[Source: TradingView; 2025 EURO STOXX 50, S&P 500]

What causes the Santa Claus Rally?

Seasonax analyst Christoph Geyer believes this upward rally is closely tied to institutional investor behavior. As the year draws to a close, fund managers would make final portfolio adjustments to lock in performance and present the results to clients and shareholders.

Such “window dressing” activity often leads to increased buying pressure, particularly in stocks that have already shown strong performance or stand to benefit from short-term momentum.

Other analysts point to the broader psychological impact of Christmastide: festive sentiment tends to lift investor optimism, while heightened risk appetite provides further tailwinds for equity markets.

Will 2025 see a Santa Claus rally?

Analysts are divided on whether the Santa Claus rally will arrive on schedule this year.

Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, argues that the Santa Claus Rally might not appear this year, noting that U.S. equity performance so far in 2025 has largely defied seasonal norms.

In contrast, Tom Lee, co-founder of Fundstrat Global Advisors, is optimistic. He contends that with the Federal Reserve poised to cut rates this month — and quantitative tightening set to conclude after nearly three years — liquidity conditions are primed for a dramatic surge. He believes the S&P 500 is positioned for a year-end melt-up.

If December turns strong, Tome Lee expects an aggressive, catch-up buying from fund managers to avoid underperformance.