S&P 500 Melt-Up? The Data-Driven Case for SPX Upside in December

S&P 500 Key Points

December has historically been one of the strongest months for the S&P 500, both from an average return and win rate basis.
December returns following a +20% gain in the first 11 months have been even more impressive over the last 40 years.
Fears about elevated valuations, the potential for higher interest rates, an AI bubble, a potential trade war, etc. are still worth considering.

December is in the air, and with it, all of the standard seasonal fare for this time of year: The in-laws are finally back home after overstaying their Thanksgiving welcome yet again, the stress from a year of Christmas shopping procrastination is growing more and more acute, and market strategists are abuzz talking about the potential for a “Santa Claus Rally” in the stock market.

First formalized by Yale Hirsch in the 1972 edition of The Stock Trader’s Almanac, the Santa Claus Rally describes the historical tendency of the stock market (particularly the S&P 500) to climb during the last five trading days of the year and the first two of the new year.

While the Santa Claus Rally technically only covers the last five trading days of the year, many traders and analysts use the term to refer the stock market’s general tendency to rally in December. As the chart below shows, December has been the 2^nd best month for S&P 500 (price-only) returns since 1950, though of course past performance is not necessarily indicative of future returns:

Source: TradingView, StoneX. Past performance is not indicative of future returns.

Interestingly, when we look at the probability of any given month closing higher, December has actually been the strongest month of all, with the S&P 500 closing higher in December nearly 75% of the time since 1950:

Source: TradingView, StoneX. Past performance is not indicative of future returns.

Now of course, these are just long-term averages that lose a lot of the nuance in any given year, but the stock market has seen particularly strong returns through the first 11 months of the year, potentially increasing the likelihood that asset managers will have to “chase” performance into year end. Looking just at years when the S&P 500 was trading up by 20%+ through the first 11 months (it finished November up ~26.7% this year), the index has finished December higher seven of the last eight occurrences over the last 40 years, though the track record before then was more mixed:

Source: TradingView, StoneX. Past performance is not indicative of future returns.

Make no mistake: Fears about elevated valuations, the potential for higher interest rates, an AI bubble, a potential trade war, etc. are all worth considering, but it’s also true that the strongest bull markets climb the proverbial “wall of worry.” While pessimism and skepticism are always fashionable when it comes to the outlook for the stock market and the economy, the longer-term track record suggests that traders may want to avoid getting too bearish until we flip the calendars to 2025 at the earliest.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex, commodity futures, or digital assets, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to FOREX.com or GAIN Capital refer to StoneX Group Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Please note that foreign exchange and other leveraged trading involves significant risk of loss. It is not suitable for all investors and you should make sure you understand the risks involved, seeking independent advice if necessary.

The products and services available to you at FOREX.com will depend on your location and on which of its regulated entities holds your account.

FOREX.com is a trading name of GAIN Global Markets Inc. which is authorized and regulated by the Cayman Islands Monetary Authority under the Securities Investment Business Law of the Cayman Islands (as revised) with License number 25033.

FOREX.com may, from time to time, offer payment processing services with respect to card deposits through StoneX Financial Ltd, Moor House First Floor, 120 London Wall, London, EC2Y 5ET.

GAIN Global Markets Inc. has its principal place of business at 30 Independence Blvd, Suite 300 (3rd floor), Warren, NJ 07059, USA., and is a wholly-owned subsidiary of StoneX Group Inc.