Can US and European Markets Hit New Highs This December? The Santa Claus Rally in Sight

As December unfolds, investors are turning their attention to a long-standing market phenomenon that has the potential to propel stocks toward fresh highs. The so-called Santa Claus Rally—a period of historically strong market performance spanning the final five trading days of the year and the first two trading days of January—is now firmly in sight for both sides of the Atlantic.

The Numbers Behind the Rally

Looking at four decades of data, the evidence is compelling. The S&P 500 has climbed in December 74% of the time, posting an impressive average return of 1.44%—the second-strongest month after November. Across the Atlantic, the pattern intensifies. The Euro Stoxx 50, which tracks Eurozone’s largest companies, has delivered even more consistent results since launching in 1987, with December gains appearing 71% of the time. Its average December performance of 1.87% ranks second only to November’s 1.95%, cementing December as the year’s second-best month for European blue-chip stocks.

These figures suggest that seasonal forces remain powerful drivers of market behavior, making the upcoming weeks particularly important for investors watching their portfolios.

What Fuels Year-End Momentum?

The mechanics behind this rally are multifaceted. Christoph Geyer, an analyst at Seasonax, points to institutional behavior as the primary engine. As year-end approaches, fund managers execute strategic portfolio adjustments—often called “window dressing”—to finalize performance metrics before client presentations. This repositioning activity creates waves of demand for outperformers and momentum plays.

Beyond mechanics, psychology plays an outsized role. The festive season amplifies optimism among market participants, generating heightened risk appetite that typically benefits equity markets. Combined with potential liquidity conditions, these tailwinds have historically created ideal conditions for sustained buying.

Will 2025 Follow the Script?

Observers remain split on whether the classical pattern will repeat. Amy Wu Silverman of RBC Capital Markets sounds a cautionary note, observing that 2025’s equity performance has already deviated from seasonal norms, potentially signaling a break from tradition.

Tom Lee from Fundstrat Global Advisors counters with optimism. His thesis rests on two pillars: anticipated Federal Reserve rate cuts in December and the conclusion of quantitative tightening after nearly three years. These conditions, he argues, create favorable liquidity dynamics. Lee anticipates a year-end “melt-up” in the S&P 500, driven by aggressive catch-up buying from fund managers seeking to avoid underperformance relative to benchmarks.

The debate underscores an important reality: while historical patterns offer a roadmap, market surprises remain possible. Whether December delivers the gains in sight depends on how these competing forces ultimately play out.