I'm Watching the Santa Claus Rally Closely -- Here's What It Could Mean for Your Returns in 2026

Market Performance - Major U.S. stock market indices have shown positive performance over the past week, with the S&P 500 gaining 3.3%, the Nasdaq Composite rising 4.1%, and the Dow Jones Industrial Average increasing by 1.8% [2] - The Santa Claus rally period is defined as the last five trading days of December and the first two of January, specifically from December 24 to January 5 this year [3] Historical Context - Historically, a Santa Claus rally has occurred about 80% of the time over the last 50 years, with the S&P 500 averaging a gain of 1.3% during this period compared to an average seven-day market return of 0.2% [4] - Recent years have seen a decline in the frequency of Santa Claus rallies, with the last significant rally occurring in 2018 when the S&P 500 rose by 4.1% after a 14.2% market drop between Thanksgiving and Christmas [5] Current Market Sentiment - Current market conditions appear favorable for a potential Santa Claus rally, as the S&P 500 did not set a new record high in November and is recovering from a small 2.6% dip [6] - Market sentiment is reportedly buoyed by expectations of further Federal Reserve rate cuts in 2026, suggesting that the recent rally may continue into the Santa Claus rally period [6]