As Hope of Santa Claus Rally Fades, What's Next for Stocks in 2025?

As the year-end Santa Claus rally fails to materialize, investors are left wondering what lies ahead for the stock market in 2025. The S&P 500 index has fallen 0.2% on Thursday, marking the fifth consecutive day of losses, and would need to rise 1.8% on Friday to remain in positive territory for the seven-day period. This lack of a typical end-of-year boost has dampened investors' hopes for a strong start to 2025, but analysts remain optimistic about the market's prospects.

Historically, the Santa Claus rally has been correlated with stocks' January and full-year performance. The S&P 500 has averaged a 1.4% gain in January and a 10.4% gain in the calendar year after a Santa Claus rally. In years without a Santa Claus rally, the index's average January return has been slightly negative, and its full-year return has averaged just 5%. However, analysts are generally optimistic about the outlook for stocks in 2025, citing factors such as incoming President Donald Trump's policies and the continued strength of the U.S. economy.