The holidays aren't just a time for people to celebrate. Holidays are a time for the markets to celebrate, too.
The "Santa Claus rally," which looks at the performance of the S&P 500 index (^GSPC 1.52%) over the last five trading days of December and the first two of January, is traditionally considered a good opportunity for investors to capture gains. From 1950 to 2025, the S&P 500 has posted positive returns 78% of the time during this period, with an average gain of 1.3%.
However, the rally ending in 2026 delivered a warning, not tidings of good cheer.
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Three straight years of negative returns
For the first time since at least 1950, the S&P 500 delivered negative returns during this window for three consecutive years. In 2024, the index was down 0.9%. It fell again in 2025, posting a loss of 0.3%. This year, it was marginally lower, falling 0.1%.
While it's not a scientific measure, the Santa Claus rally has historically signaled how the rest of the year might turn out. In "up" years, the S&P 500 has averaged a 10.4% return for the full calendar year. When it's down, the index has only gained an average of 6.1%.
To be fair, this measure isn't indicative of what could happen in any particular year. Take the past two years, for example. It was down during the rally window in both cases, but the S&P 500 managed to deliver full-year gains of 23% and 16%, respectively.
But we've never seen losses in three consecutive years during this window. The fact that the index has produced double-digit returns in both 2024 and 2025 could mean the U.S. stock market is at greater risk of a deeper-than-average pullback this time around. We just don't know for sure.
That may be the scariest part of all.
