U.S. stocks' 75-year iron law! Santa Claus rally generally gains 1.6%, S&P target at 7000 points

The “Santa Claus Rally” in the US stock market is about to begin, referring specifically to the 7-day window period spanning the last 5 trading days of the year and the first 2 trading days of the new year. Since 1929, the S&P 500 index has a 79% chance of rising during this period, with an average return of 1.6%. In the past 8 years, it has only declined once. The current S&P roughly sits at 6,830 points, just one step away from 7,000 points. With the combination of rate cuts and AI demand, pushing the S&P to 7,000 points is highly plausible.

79% Win Rate Behind Wall Street’s Year-End Battle

(Source: Dow Jones Market Data)

The Santa Claus Rally is not mysticism but an inevitable result of Wall Street’s year-end battle. Many analysts will tell you it’s due to holiday optimism, but the truth is often more pragmatic and humanly calculated. It’s not just sentiment; it’s a perfect blend of Wall Street’s “face-saving” efforts and “year-end sprint.” Imagine this: fund managers have worked hard all year and are about to receive their year-end bonuses, and year-end performance reports are about to be released. Who would want to show clients a portfolio full of stocks that keep falling? No one would.

Therefore, institutions go all out to “window dress” their performance—buying leading stocks that perform well to make the overall index look good at year-end. This behavior is an open secret in the financial industry, played out every December mid to late month. Plus, many pessimistic bears go on holiday skiing, liquidity in the market drops, and with a little buying pressure, the index soars. Shorting US stocks at this time? That’s basically going against the entire year’s bonus payout—suicide.

Data supports the reliability of this logic. In nearly 100 years since 1929, the Santa Claus Rally has a remarkable 79% success rate. Narrowing down to the 75 years since 1950, the success rate remains at 79%, demonstrating the stability of this pattern. Even more impressive, in the past 8 years, it has only declined once, and recent success rates are even higher than the historical average. Such consistency is rare in financial markets, as most technical indicators or seasonal patterns tend to lose effectiveness over time.

Three Major Drivers of the Santa Claus Rally

Institutional window dressing: Fund managers buy top stocks at year-end to beautify reports, pushing the index higher

Liquidity vacuum: Bears take vacations, trading volume shrinks, and small amounts of buying can drive prices up

Holiday optimism: Strong consumer data, improved corporate earnings expectations, market sentiment warms

Technical inertia: After initiation around December 15-16, upward momentum usually continues into the second trading day of the new year

The Mid-December Seasonal Curse

If you carefully observe the average trend of the S&P 500 from 1950 to 2024 over these 75 years, you’ll find an astonishing pattern: the real rally often starts around December 15 or 16. The first half of December may still be hesitant or volatile (as we’ve recently seen), but once past mid-month, the market seems to hit a start button and climbs all the way until year-end.

This precise timing isn’t coincidental. Mid-December is a convergence point for multiple factors in the US stock market. First, Q4 earnings are largely finalized, and fund managers begin their final adjustments for year-end reports. Second, the Federal Reserve’s December FOMC meeting usually occurs around mid-month, and after policy clarity, uncertainty diminishes. Third, about a week before Christmas, institutional investors start to enter “holiday mode,” with reduced trading activity but completed position adjustments.

Currently, the S&P 500 index is about 6,830 points, just 2.5% away from 7,000. With an average 1.6% rise during the Santa Claus Rally, plus the additional momentum from the current macro environment, breaking through 7,000 points is highly likely. More importantly, 7,000 is a psychologically significant level. Once broken, it will attract trend followers to jump in, creating a self-reinforcing upward cycle. In technical analysis, crossing key round numbers often triggers volume-driven follow-through, pushing prices higher.

Rate Cuts, AI, and Geopolitical Easing—Triple Boost

The macro environment currently adds fuel to this fire. The Fed’s rate-cut cycle has already begun; in December, it cut interest rates by 25 basis points, and markets expect possibly one to two more cuts in early 2026. Rate cuts lower the cost of capital, improve corporate profits, and make valuations more attractive. Historically, rate-cutting cycles tend to be very favorable for stocks because they unleash liquidity and improve corporate financial health.

Demand for AI remains astonishingly strong. Just look at NVIDIA’s graphics card sales worldwide—it’s a clear vote of confidence. Tech giants like Microsoft, Amazon, and Google continue to increase capital expenditure on AI infrastructure. Goldman Sachs estimates that by 2027, AI-related investments may approach $1 trillion annually. This structural demand provides solid fundamental support for tech stocks, which account for over 30% of the S&P 500.

Geo-political easing is also injecting confidence. Rumors of peace talks in Ukraine, relative stability in the Middle East, and signals from Trump’s return to the White House favoring pro-business policies all lower market risk premiums. When geopolitical uncertainties recede, funds are more willing to flow into risk assets rather than safe havens. This risk appetite boost, in a low-liquidity environment at year-end, amplifies the effect.

In this context, the S&P 500 surging past 7,000 isn’t blind optimism but a highly rational “circuit breaker” target. A circuit breaker target implies that multiple positive factors working together can cause the market to accelerate and break through key resistance levels. Historically, during strong macro conditions in the Christmas period, gains tend to surpass averages. The conditions in 2025 align perfectly with this scenario.

Holiday Traps for High-Risk Assets

Of course, markets have two sides. While the S&P 500 has a 79% upward law, high-risk assets may experience “skydiving” during liquidity droughts over the holidays. Bitcoin’s performance around Christmas has been volatile; with institutional investors on vacation and trading volume dropping sharply, even small sell-offs can cause significant price swings. This reminds investors that even though the Santa Claus Rally favors US stocks broadly, not all asset classes follow this pattern.

Choosing the right sectors is crucial. The S&P 500’s constituents are America’s largest and most stable 500 companies, with a high probability of rising under institutional buying at year-end. However, small caps, biotech stocks, or cryptocurrencies—highly volatile assets—may face downturn risks during holiday liquidity shortages. A rational strategy is to allocate to the index or weighted stocks during the Santa Claus Rally, rather than chasing high-risk speculative targets.

In summary, betting on US stocks to fall in mid-December is going against nearly a century’s seasonal pattern, liquidity trends, and human greed for bonuses. Santa’s sleigh is already warming up—upward is the easiest path. Buckle up; in the next two weeks, 7,000 points await. History cannot predict the future with 100% certainty, but when the win rate hits 79% and macro conditions align, being on the high-probability side is the rational choice.