5 Market Trends to Watch as 2025 Comes to an End
The Santa Claus rally is at the top of the list, but here are four other things to watch for as well.
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Trading in the final days of the year is unlike any other time of the year. There are a number of issues driving the action that have little to do with the fundamentals of individual stocks or technical conditions. The action can offer great opportunities for aggressive trading, but it can also be volatile and high-risk.
Here are five market trends to watch as 2025 comes to an end:
1. The Santa Claus Rally
The Santa Claus rally period is officially defined as the last five trading days of December and the first two trading days of January. Since 1950, this period has produced an average gain of 1.3% for the S&P 500, versus 0.2% for the average week, according to the Stock Trader’s Almanac.
The Santa Claus rally is highly anticipated and often attracts trading activity among speculators who try to front-run it. To some degree, it is self-fulfilling. Once positive action starts, then other traders will jump in as fear of missing out builds quickly.
Like most seasonal patterns, the Santa Claus rally is a tendency rather than a certainty. In 2024-25, there was a reverse Santa Claus rally, as the S&P 500 declined 2.4% in December. What was even worse was that the market sold off every single trading session between Christmas and New Year’s Day. This was the first failed Santa rally since 2015.
2. Tax-Loss Selling
Many investors make moves for tax purposes in the last few days of the year. When the market produces large index gains, as it has this year, there is a greater likelihood that stocks with significant unrealized losses will be sold to offset capital gains. These stocks may see increased selling pressure, creating conditions for a rebound to end the year.
3. Repositioning and Gain Harvesting
In addition to tax-loss selling, many large investors will engage in repositioning and gain harvesting as the year comes to an end. Some just want to close their books and start fresh in the new year, while others want to reallocate their holdings between equities and bonds, and across various market sectors.
These moves can be abrupt and sizable, which at times creates some surprise volatility. Usually, there is at least one day near the end of the year when there is a high level of gain harvesting.
4. Speculative Trading
Small speculative traders are well aware of the above tendencies and are even more aggressive in trying to capture short-term moves. They will often focus on small-caps and meme names, which attracts other traders and can cause sizable moves. There can be some big and fast swings, so if you are playing this game, you need to be extra vigilant and disciplined.
5. Predictions
This is the time of year when the business media rolls out stories about what happened over the course of the year and predictions for the year ahead. While there are many interesting insights and stock picks, most of this discussion is not actionable in the short term. I’ll be keeping track of ideas I find interesting and will design some strategies for pursuing those I think may work.
Many traders and institutional investors are wrapping up for the year and plan to enjoy the holidays with family and friends. This leads to thinner trading and greater volatility.
We have a positive start early on Monday morning.'
At the time of publication, Rev Shark had no positions in any securities mentioned.
