We bet the Santa Claus Rally would finally happen

Every year, as December approaches and the Christmas lights begin to appear on homes, a curious phenomenon occurs in the stock market: the Sinterklaas meeting. If you’re an investor, this is the kind of idiosyncratic seasonal pattern that’s worth understanding, both for context and for the timing of your year-end investment decisions.

So what exactly is it? The Santa Claus rally refers to the tendency of the stock market, usually measured by the S&P 500, to post higher returns during the last five trading days of the year and the first two trading days of the new year. That said, as a strategic investor you don’t have to view these dates as rigid boundaries.

Historically, it has been a surprisingly consistent phenomenon. According to data going back decades, the S&P 500 has averaged a gain of about 1-1.5% over this period.

That may not sound like much, but in a market that struggles to move more than a few percent in a single week, it’s meaningful. And for long-term investors, knowing the historical context of these seasonal upswings can help temper expectations and reduce the urge to over-trade during the holidays.

Why is a Santa Claus rally taking place?

There is no single, universally accepted explanation for the Sinterklaas gathering, but several plausible theories have emerged over the years:

1. Holiday optimism: The end of the year is a time of cheer, bonuses and positive sentiment. Investors may feel more confident and willing to buy shares, which can drive up prices. Unfortunately, for those who are FIRE, there is no salary or big year-end bonus to count on. So we’re counting on all of you to fund your IRAs, 401(ks), SEP-IRAs and more!
2. Harvesting Tax Loss: Towards the end of December, investors often sell underperforming stocks to offset price gains elsewhere. After this selling pressure subsides, buying resumes, sometimes causing a rebound in stock prices.
3. Portfolio rebalancing: Many institutional investors and fund managers rebalance their portfolios at the end of the year. This activity can create buying pressure in certain sectors, improving overall market performance. This practice is often mentioned window coverings: Managers add high-performing stocks, sometimes late in the year or in small quantities, so they can show their investors stronger positions.
4. Thin trade: During holiday periods, trading volumes are typically lower, which can exaggerate market movements up or down. Even modest purchasing interest can lead to noticeable price increases.
5. Psychology and expectation: Some argue that the Sinterklaas gathering is, at least in part, a self-fulfilling prophecy. Traders and investors expecting a year-end rally can buy in advance, triggering the rally itself.

Origin of the term

The term Sinterklaas meeting was first popularized in the 1970s by Yale Hirsch, the founder of the Stock Trader’s Almanac. Hirsch noticed a recurring seasonal pattern and, in a nod to the holidays, called it the Sinterklaas gathering. The phrase stuck because the market, like Santa Claus, seems to deliver presents at the end of the year, even though in reality it is just a mix of psychology, technical factors and historical oddities.

Since then, analysts have been following the phenomenon closely. While the market doesn’t always stage a rally, historical data shows that it happens often enough to warrant attention.

Below is a chart highlighting the historical performance of the S&P 500 over the last five trading days of the year and the first two trading days of the new year since 1950. What do you see?

The frequency of a Santa Claus meeting

History shows that the market has experienced a Sinterklaas rally since 1950 77.33% of the time. Perhaps most interesting for this year: there has never been a period of three consecutive years without it.

In the ~23% of cases where the S&P 500 falls, it is due to factors such as recessions, geopolitical crises, or major market shocks. But the long-term data suggests that, even with outliers, the odds tilt in favor of gains more often than not.

It’s also worth noting that the size of the rally varies. Some years produce small profits; others see excessive jumps. During periods, for example after major market declinesthe Santa Claus Rally has seen occasional mid- to high-single-digit percentage moves in just a few days, though these are the exceptions and not the rule.

Just look at what happened in 2008. The S&P 500 fell 38.5% during the onset of the global financial crisis. However, there was a Sinterklaas rally of 7.45%, followed by a recovery of 23.5% in 2009.

How investors can use this knowledge

Understanding the Santa Claus rally is not about timing the market perfectly, which is impossible. It’s more about context, perspective and making rational decisions:

• Don’t panic: If your portfolio is lagging in December, remember that historical trends suggest a modest increase often occurs in the last week of the year.
• Mind your bias: Just because rallies happen often doesn’t mean they are guaranteed. Consider this a useful historical pattern, not a crystal ball.
• Consider rebalancing: The end of the year can be an opportunity to rebalance portfolios, realize tax losses, or get your asset allocation back to target levels. The Santa Claus rally is a bonus, but it should not determine your core strategy.
• Confidence to buy: If the market has already corrected, especially in the run-up to the Sinterklaas rally period, this can give you more confidence to put money to work.

While it doesn’t guarantee a profit, understanding its patterns can help investors make calmer, more rational year-end decisions. It can also help avoid emotional trades during a season of low trading volumes.

A believer in this year’s Santa Claus Rally

This year I decided to trade the pattern more aggressively. The S&P 500 corrected roughly 19% from February to April 2025, followed by another 6% decline from October to November. Then, on December 17, I bought the last mini dip, just as I did during the previous pullbacks, because I felt that a Sinterklaas rally or at least a rebound was likely.

Considering there is There have never been three consecutive years without a Sinterklaas gatheringit felt like we were due. The fact that the market staged another mini-correction on December 17 felt like a gift to those waiting to put cash to work. Only time will tell whether these investments will ultimately prove profitable.

A big part of investing is psychological. The more courage we have to invest consistently for the long term, the richer we become. If understanding the Sinterklaas Rally helps us put money to work with more confidence, so much the better.

Merry Christmas and happy holidays. May your investment portfolio give you the gift of great returns so that you don’t have to work so hard in the new year!

Stay on top of your finances this holiday season

Just as I took action during this year’s market declines in the run-up to the Sinterklaas Rally, taking control of your finances can give you an edge in the long run. One tool I have relied on since leaving my job in 2012 is Empower’s free financial dashboard. It helps me track net worth, investment performance, and cash flow so I can take steps with confidence when opportunities arise.

If you haven’t reviewed your portfolio in the last six to 12 months, the end of the year is the perfect time. You can do a DIY check-up or schedule an appointment free financial assessment through Empower. Either way, you’ll gain insights about your allocation, risk exposure, and investing habits that can boost your long-term returns.

By investing consistently, tracking your finances, and trading when the time is right, such as during market downturns, small moves today can lead to meaningful wealth tomorrow. Think of it as your own end-of-year gift to your future self.

Empower is a long-term partner of Financial Samurai. I’ve been using their free tools since 2012 to track my finances. Click here for more information.

If you like stock market commentary and real-time insight into what I’m doing with my investments, subscribe to my free weekly newsletter here. I have been investing my own money since 1996 with the aim of generating positive returns and maximizing freedom.