Don't count on a 'Santa Claus rally' this year: market technician warns

US stocks, as represented by the benchmark S&P 500 index, are on track to close the year in green.

But a so-called “Santa Claus rally” may not show up this year – and that doesn’t paint a particularly rosy picture of what’s to come in 2026, says Jonathan Krinsky, chief market technician at BTIG.

The benchmark index has pulled back over 2.0% this week, but Krinsky warns the recent weakness may prove a drop in the bucket compared to what’s in store for investors moving forward.

What exactly is a Santa Claus rally?

A “Santa Claus rally” refers to a well‑known seasonal pattern in US stocks. Historically, they tend to rise during the final five trading days of December and the first two sessions of January.

On average, the S&P 500 gains 1.2% during this period and 1.4% in December at large, according to data from Stock Trader’s Almanac.

Market historians and traders have tracked this trend for decades – observing that the period often brings a modest but reliable boost to major indices.

Theories behind the pattern vary. Some attribute it to lighter trading volumes as institutional desks wind down for the year, while others point to improved investor sentiment tied to holidays, bonus flows, or portfolio rebalancing.

According to long‑standing market data, this stretch has historically produced positive returns more often than not – making it a closely watched phenomenon on Wall Street.

Why a Santa Claus rally may not arrive in 2025

According to Jonathan Krinsy, the technical setup looks less promising in 2025.

In his research note, the market technician highlighted that the benchmark index is hovering precariously near its 50‑day moving average, a level many traders view as a gauge of short‑term momentum.

The S&P 500 recently dipped below that threshold intraday, raising concerns about fading strength. “It was about a month ago when SPX had gone some 7 months without closing below its 50 DMA,” he wrote.

However, the recent weakness suggests it may close below it again in the days ahead – potentially accelerating the bearish momentum in the near-term, Krinsky added.

That shift, he said, marks “a subtle, but notable change in character.”

All in all, the benchmark has slipped during a month that typically delivers gains – suggesting the seasonal tailwinds may not be strong enough to offset market fatigue, according to BTIG’s chief market technician.

What a missing Santa Claus rally signals for 2026

If the market fails to stage its usual late‑December bounce, the implications could extend well beyond the holidays.

Historically, the absence of a Santa Claus rally has been interpreted as a cautionary signal for the year ahead.

Stock Trader’s Almanac notes that when this seasonal pattern falters, it has often preceded periods of market turbulence or weaker‑than‑expected performance.

While no single indicator guarantees future outcomes, a lackluster finish to 2025 could reinforce concerns about stretched valuations, slowing momentum, or shifting macro conditions.

For investors, that may mean entering 2026 with a more defensive posture.