Is the Santa rally delivering?

Once December rolls around, there tends to be just one question on any seasoned investor’s mind: will we see a Santa rally this year?

The term ‘Santa rally’ refers to the tendency of stock markets to rise as the festive season kicks in and consumer spending rises. This also sees optimistic investors pile more into the top stocks and funds.

The FTSE 100 has returned 2.1% on average during December since 1984, making it the index’s best-performing month of the year. April and July are the only other months of the year with an average gain above 1% during that period.

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“If you want to know why markets talk about the Santa Rally, that is why – because the numbers back it up,” said Russ Mould, investment director at AJ Bell.

As December 2025 nears an end, have the markets delivered on the promise of a seasonal surge?

The FTSE 100 certainly seems to have. Between the last trading day of November and close of trading on 22 December, the index gained 1.5%.

But things can change quickly – as of 16 December, the index was down 0.4% for the month – but as things stand, the UK’s flagship index has given investors a little festive cheer in the run-up to Christmas.

The S&P 500 is also up through December, though by just 0.4%. It is trailing the FTSE for the month, as well as through 2025 to date.

How often do we see a Santa rally?

The data shows that stock markets do tend to rise during December. Analysis from Fidelity International shows that the FTSE 100 posted a positive return in December in 24 of the last 30 years, while the S&P 500 rose in 22 of the last 30 Decembers.

Why that happens is less clear. Jemma Slingo, pensions and investment specialist at Fidelity International, attributes the existence of Santa rallies to positive sentiment among investors at this time of year.

“Optimism tends to build as the year draws to a close and investors look ahead with a sense of renewal in the new year,” she said. “Festive optimism, Christmas bonuses and thinner trading volumes are often cited as contributing factors.”

Mould points out that in the past, investors looked forward to a ‘January effect’, wherein financial advisers would put their clients’ money to work in the new year and lift the stock market.

While this no longer happens, Mould thinks that the Santa rally effect may have originated with investors attempting to anticipate the January effect in advance.

While the Santa rally effect can make December a buoyant month for the stock market, Mould cautions that it often precedes a weaker year ahead.

“The FTSE 100 has served up 11 annual losses since 1984 and 10 of those came after a gain in the December of the previous year,” he said. “The only exception was 2015, whose 4.9% annual decline came after a 2.3% slide in December 2014.”

Some of the biggest historical Santa rallies have preceded sharp market downturns, such as the shock Federal Reserve rate hike in 1994 that followed a buoyant December 1993.

Last year (2024) was one of the rare cheerless Decembers for the FTSE 100, which fell 1.4% during the month. But as of the end of November, the index is up 18.9% this year – underscoring the point that dismal Decembers don’t necessarily mean an unhappy new year. In a separate article, we also take a look at where to invest for 2026.

Should you bank on a Santa rally?

Santa rallies are frequent occurrences, but like any seasonal investing trend, such as the ‘sell in May’ approach, they shouldn’t be relied upon too heavily.

“Seasonal patterns like the Santa rally are no substitute for a long-term investment plan, but they do offer an insight into how investor psychology can drive markets,” says Slingo. “Even in times of uncertainty – whether it’s financial crises, referendums or pandemics – December has often rewarded those who stayed invested rather than trying to time the market,” she added.

The FTSE has delivered reasonable performance through the first three weeks of December, though as things stand it is trailing its average return for the month.

“History shows that investors who stay the course tend to be rewarded over time,” said Slingo. “The festive season can bring volatility and opportunity in equal measure, but discipline and perspective remain the best gifts investors can give themselves.”