Is Santa Rally Just Beginning? How to Play With ETFs

Market Overview - U.S. stocks ended the last session slightly lower after five consecutive days of gains, marking the second day of the seasonal "Santa Claus rally" with the S&P 500 up about 2%, Dow Jones gaining 1.5%, and Nasdaq Composite surging 2.0% [1] Santa Claus Rally Momentum - Conditions are favorable for the continuation of the Santa Claus rally, which typically occurs during the last five trading days of December and the first two sessions of January, with historical trends suggesting a positive signal for January and the upcoming year [2][3] Economic Conditions - The U.S. economy is described as experiencing a "Goldilocks scenario" with above-potential growth, declining but elevated inflation, and a less robust labor market, indicating a need for balance among these factors [4] - The U.S. GDP rose an annualized 4.3% in Q3 of 2025, the highest in two years, compared to 3.8% in Q2 and forecasts of 3.3% [5] - Consumer spending grew 3.5%, the highest growth so far this year, while the annual inflation rate was reported at 2.7% in December 2025, the lowest since July [6] Investment Opportunities - Mid-Cap: The State Street SPDR S&P 400 Mid Cap Value ETF (MDYV) is highlighted as a potential investment area, benefiting from improving economic health and a trend of investment rotation from technology stocks [8] - Technology: The Technology Select Sector SPDR ETF (XLK) is positioned well due to reduced recession risks and favorable low-interest rates, which enhance profit margins for tech companies [10] - Banking: The SPDR S&P Bank ETF (KBE) is gaining attention as capital market activity improves and the yield curve steepens, supported by strong third-quarter results from banks [11] - Retail: The VanEck Retail ETF (RTH) is expected to benefit from solid economic growth and the ongoing holiday season, which positively impacts consumer discretionary spending [12]