Santa Claus has been conspicuously absent on Wall Street this year. The S & P 500 is down 1.2% since Tuesday, a departure from historical year-end trends. Usually, stocks experience a so-called Santa Claus rally between the last five trading days of December and the first two January sessions. Data from the Stock Trader’s Almanac shows the broad market index has averaged a 1.3% advance during this period since 1969 . December overall hasn’t been too great either for stocks, with the S & P 500 shedding 1%. Some headwinds hitting stocks recently have been bad market breadth and higher Treasury yields. BTIG’s Jonathan Krinsky noted that just 58% of S & P 500 companies are trading above their 200-day moving averages — marking the “the weakest reading all year.” The benchmark 10-year Treasury note yield also crossed above 4.6% recently after the Federal Reserve signaled fewer rate cuts in 2025 than previously indicated. US10Y 1M mountain US 10-year Treasury yield in past month Stock futures pointed to a continuation of this downbeat trading action on Monday. S & P 500 and Nasdaq-100 futures dropped more than 1% each. Dow Jones Industrial Average lost more than 400 points. (Take Monday’s moves with a grain of salt, though, as low-volume trading heading into year-end can lead to outsized market swings.) Tom Lee, however, thinks there’s a silver lining heading into 2025. “Keep in mind that 2024 has shown an equity market that has eluded prolonged periods of weakness. While December has been disappointing, we do not think this is a sudden change of market character. And ‘buying dips’ has been profitable for all of 2024,” Lee, Fundstrat’s head of research, wrote in a note Sunday. He added that fundamental tailwinds heading into the new year are still in place. These are potential deregulation from the incoming Trump administration, a “drop in cost of capital for businesses” as well as “general ‘animal spirits’ given Republican White House and Senate.” Against this backdrop, Lee advised clients buy small-cap stocks, cyclical sectors such as financials and bitcoin. The iShares Russell 2000 ETF (IWM) , which tracks the small-cap benchmark, is up 10% year to date but has dropped 8% in December. The S & P 500 financials sector is down 5% this month but has rallied nearly 30% in 2024. Bitcoin has had a record year, breaking above $100,000 before easing back to around $93,000.
