Will the December Surge Push Markets to New Heights? Experts Remain Split on 2025's Year-End Outlook

As December arrives, markets are watching for the traditional year-end rally—but 2025 presents a puzzle. The so-called Santa Claus Rally has long been a fixture in financial calendars, referring to the sustained buying pressure during the final five trading days of December and first two of January. Yet opinions diverge sharply on whether this pattern will materialize this year.

The Case Against a December Rally

Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, cautions that the Santa Claus Rally may fail to appear in 2025. She points to U.S. equity performance year-to-date, which has largely defied conventional seasonal expectations. Market momentum, she suggests, doesn’t currently align with the conditions typically needed for a holiday-season surge.

The Optimists’ View

Tom Lee, co-founder of Fundstrat Global Advisors, takes the opposite stance. He sees multiple catalysts converging to support a dramatic year-end melt-up. With the Federal Reserve positioned to cut rates and quantitative tightening concluding after nearly three years, liquidity conditions appear poised for a significant injection. Lee predicts that if December strengthens, fund managers could trigger aggressive catch-up buying to avoid underperformance—potentially bringing new highs within sight for equities.

Historical Precedent Supports the Rally

The Santa Claus Rally has delivered consistent results over decades. The S&P 500 Index has risen in December in 74% of cases over the past 40 years, averaging 1.44% monthly returns—second only to November. Across the Atlantic, the pattern holds even stronger: the Euro Stoxx 50 has delivered 1.87% average December gains since 1987, finishing higher 71% of the time. December ranks as the second-best-performing month for European blue-chip equities.

What Drives the Rally?

Seasonax analyst Christoph Geyer attributes the phenomenon to institutional behavior. Year-end portfolio adjustments—often called “window dressing”—create buying momentum as fund managers lock in performance for client presentations. Festive sentiment and elevated risk appetite amplify the effect, lifting investor optimism and supporting equity valuations during the holiday season.

The Bottom Line

Whether 2025 delivers its Santa Claus Rally remains uncertain. Historical probabilities suggest optimism is warranted, yet 2025’s unusual market dynamics introduce genuine doubt. Investors should monitor Fed actions and liquidity flows closely over the coming weeks.