Year-End Surge or Market Myth? Is December's Santa Claus Rally Really Coming in 2025?

The buzz around a December rally has everyone wondering: will stocks deliver this year?

As we roll into December, traders are once again eyeing the so-called “Santa Claus Rally”—a seasonal pattern where markets tend to climb during the final five trading days of December and the first two trading days of January. It sounds like a fairy tale, but the numbers tell a compelling story. Over the past 40 years, the S&P 500 has risen in December 74% of the time, posting an average monthly return of 1.44%. That’s the second-best performance of any month, only trailing November. Across the Atlantic, European markets show even stronger seasonal strength. The Euro Stoxx 50, which tracks Eurozone blue-chip stocks, has surged an average of 1.87% in December since 1987—its second-best month after November. What’s truly striking? The index has finished December in positive territory 71% of the time, outpacing any other month on the calendar.

But here’s the catch: not everyone agrees this year will follow the script.

The debate is heating up among top market strategists. Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, is skeptical. She points out that U.S. equities have already bucked seasonal trends so far in 2025, suggesting that traditional patterns may not hold. On the flip side, Tom Lee, co-founder of Fundstrat Global Advisors, is betting on a strong December rebound. His thesis is straightforward: with the Federal Reserve preparing rate cuts this month and quantitative tightening winding down after nearly three years, liquidity could flood back into equities. Lee forecasts an aggressive year-end rally for the S&P 500, potentially triggering panic buying from fund managers desperate to avoid underperformance.

Why does this seasonal phenomenon even exist?

The answer lies in institutional behavior and market psychology. According to Seasonax analyst Christoph Geyer, as year-end approaches, fund managers engage in what’s known as “window dressing”—tweaking portfolios to lock in gains and present stellar results to clients and shareholders. This often means aggressive buying of winners to amplify returns on paper. Beyond the mechanics, there’s also the psychological element: the festive season naturally lifts investor sentiment, and increased risk appetite tends to push equities higher.

So will December 2025 deliver?

The outcome likely hinges on macro conditions. If monetary policy remains accommodative and liquidity stays ample, Lee’s optimism could prove justified. But if headwinds persist, Silverman’s caution may be warranted. Either way, traders are watching closely to see whether this year’s Santa Claus Rally materializes—or becomes another market myth.