As the new year approaches, all eyes are on Wall Street to see if the coveted Santa Claus rally will be a success. The so-called rally, a term coined by Stock Traders Almanac founder Yale Hirsch in 1972, occurs between the last five business days of a year and the first two business days of a new year. In this case, that would be from the opening bell on December 24th to the second trading day of 2026, or January 5th. Since 1950, the S&P 500 index has averaged a 1.3% gain over a seven-day trading period, and Almanac editor-in-chief Jeffrey Hirsch said the index should add to that this year. “The start of the month was volatile and the mid-December lows are typical of December trading patterns,” he said in an interview with CNBC. “I think this is going to start a Santa Claus rally,” Hirsch said, adding that Thursday and Friday’s rise in the index “takes nothing away” from such a rally happening. .SPX YTD Mountain S&P 500 Year to Date On Thursday, the S&P 500 ended a four-day losing streak. It was supported by a weaker-than-expected consumer price index in November and optimism over the outlook for Micron Technology, whose artificial intelligence memory is in high demand. Enthusiasm for AI trading pushed the index further higher during Friday trading. Heading into next week, the broad index is slightly lower than in previous months, stalled in part due to AI trading volatility. It’s still up more than 16% this year. To be clear, Hirsch does not believe that stable AI trading is necessary for a Santa Claus rally to occur. Especially considering recent rotations into other areas of the market, such as financials and industrials (two out of just four S&P 500 sectors are on track for a winning month). That said, he added that a bull market is not necessarily “dependent” on its stability, but that it “will definitely strengthen the market.” Hirsch believes it’s still possible for the S&P 500 to reach 7,100 by the end of the year, implying a nearly 5% increase from Thursday’s close. Ultimately, he said, investors should take it as a “warning sign” if the Santa Claus rally doesn’t take hold. “It’s not like, ‘This is the start of a bear market.’ It’s a signal to start looking at other data, whether it’s seasonal indicators (or) other indicators, fundamentals or technicals,” Hirsch said. “This is a warning that the usual bullish year-end Santa Claus rally is not going to happen. So there might be something.”
