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Will Santa Claus Rally Set In for 2024? 4 Best ETF Areas to Explore
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Year-to-date, Wall Street is in great shape, with the S&P 500 Index up about 24% in 2024. Now, as we enter the final stretch of the year, the Santa Rally is about to set in. The "Santa Claus Rally" refers to the stock market's tendency to rise during the final trading days of December and the first two trading days of January.
However, historical data suggests that the Santa Claus rally occurred from December 15th until January 5th. In other words, if history is any guide, the time frame for the Santa Claus rally has already begun. However, Wall Street has experienced a slump so far, with the SPDR S&P 500 ETF Trust (SPY - Free Report) down 3.3% over the past five days, mainly due to less-dovish cues from the Fed. Let’s see if the rally gains momentum next week.
Inside Santa Rally
Historically, this period has yielded positive returns approximately 80% of the time, with the S&P 500 averaging a gain of about 1.4% during these seven days, per Investopedia. Factors like investor optimism, institutional activity and tax considerations are held responsible for this pickup in equity rally.
The holiday season often brings increased optimism among investors, leading to more buying activity. Meanwhile, fund managers might adjust portfolios before year-end, influencing stock prices. And a slowdown in tax-loss harvesting, which can depress prices earlier in December, also plays a role in pushing up stock prices at December-end.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
With just a handful of days remaining until Christmas and sentiments still strong (though a less-dovish Fed for 2025 may slightly dampen the festive mood on Wall Street), it seems likely that a moderate Santa Rally could take shape.
Above-consensus retail sales growth further evidenced economic resilience. The U.S. economy expanded at an annual rate of 3.1% from July through September, driven by strong consumer spending and increased exports.
ETFs in Focus
Against this backdrop, we have highlighted a few exchange-traded funds (ETFs) likely to gain from the Santa Rally in 2024.
The "Magnificent Seven" tech giants—Tesla, Amazon, Alphabet (Google), Meta Platforms (Facebook), NVIDIA, Apple, and Microsoft—have shown significant growth in 2024. Collectively, they've surpassed an $18 trillion valuation, indicating strong market confidence. Analysts expect these companies to continue dominating due to their fast-growing earnings, though risks include valuation pullbacks and regulatory scrutiny.
Airline stocks have led the travel industry's rally into December. Companies like United Airlines, Allegiant, and American Airlines have been among the fastest-growing stocks. The cruise industry, with players like Norwegian Cruise Line Holdings, Royal Caribbean, and Carnival, continues to break booking records, with expectations of strong demand for the next year. AAA projects 119.3 million people will travel 50 miles or more from Dec. 21 to Jan. 1. Record-breaking travel numbers are expected during the weekend before and the weekend after the holiday.
Amazon stock has gained 10% over the past one month (although the stock slumped 2.3% over the past week) a robust start to holiday shopping. The stock is up about 50% year-to-date and is included in several analysts' top picks for 2025. The ETF XLY is heavy on Amazon (22.89% weight), followed by Tesla (17.81%). Several analysts are bullish on Tesla too. Tesla stock has surged 27% past month and 3.8% past week.
Energy – United States Natural Gas ETF (UNG - Free Report)
Cold weather at the year-end often leads to higher demand for heating oil and natural gas. Plus, there may be year-end adjustments to energy reserves.Natural gas prices just hit the highest level in two years amid concerns of a cold-blast winter in the northern hemisphere. Signs of a U.S. lower supply, as indicated by EIA data, further contributed to the price surge.
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Will Santa Claus Rally Set In for 2024? 4 Best ETF Areas to Explore
Year-to-date, Wall Street is in great shape, with the S&P 500 Index up about 24% in 2024. Now, as we enter the final stretch of the year, the Santa Rally is about to set in. The "Santa Claus Rally" refers to the stock market's tendency to rise during the final trading days of December and the first two trading days of January.
However, historical data suggests that the Santa Claus rally occurred from December 15th until January 5th. In other words, if history is any guide, the time frame for the Santa Claus rally has already begun. However, Wall Street has experienced a slump so far, with the SPDR S&P 500 ETF Trust (SPY - Free Report) down 3.3% over the past five days, mainly due to less-dovish cues from the Fed. Let’s see if the rally gains momentum next week.
Inside Santa Rally
Historically, this period has yielded positive returns approximately 80% of the time, with the S&P 500 averaging a gain of about 1.4% during these seven days, per Investopedia. Factors like investor optimism, institutional activity and tax considerations are held responsible for this pickup in equity rally.
The holiday season often brings increased optimism among investors, leading to more buying activity. Meanwhile, fund managers might adjust portfolios before year-end, influencing stock prices. And a slowdown in tax-loss harvesting, which can depress prices earlier in December, also plays a role in pushing up stock prices at December-end.
In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally would be more visible.
Are We Primed for a Santa Rally This Year?
Historically, Wall Street tends to perform strongly in December. Specifically, the S&P 500 has exhibited positive returns in December 74% of the time since 1928, which is more frequent than any other month.
With just a handful of days remaining until Christmas and sentiments still strong (though a less-dovish Fed for 2025 may slightly dampen the festive mood on Wall Street), it seems likely that a moderate Santa Rally could take shape.
Above-consensus retail sales growth further evidenced economic resilience. The U.S. economy expanded at an annual rate of 3.1% from July through September, driven by strong consumer spending and increased exports.
ETFs in Focus
Against this backdrop, we have highlighted a few exchange-traded funds (ETFs) likely to gain from the Santa Rally in 2024.
Technology – Roundhill Magnificent Seven ETF (MAGS - Free Report)
The "Magnificent Seven" tech giants—Tesla, Amazon, Alphabet (Google), Meta Platforms (Facebook), NVIDIA, Apple, and Microsoft—have shown significant growth in 2024. Collectively, they've surpassed an $18 trillion valuation, indicating strong market confidence. Analysts expect these companies to continue dominating due to their fast-growing earnings, though risks include valuation pullbacks and regulatory scrutiny.
Leisure – Amplify Travel Tech ETF (AWAY - Free Report)
Airline stocks have led the travel industry's rally into December. Companies like United Airlines, Allegiant, and American Airlines have been among the fastest-growing stocks. The cruise industry, with players like Norwegian Cruise Line Holdings, Royal Caribbean, and Carnival, continues to break booking records, with expectations of strong demand for the next year. AAA projects 119.3 million people will travel 50 miles or more from Dec. 21 to Jan. 1. Record-breaking travel numbers are expected during the weekend before and the weekend after the holiday.
Retail – Consumer Discretionary Select Sector SPDR ETF (XLY - Free Report)
Amazon stock has gained 10% over the past one month (although the stock slumped 2.3% over the past week) a robust start to holiday shopping. The stock is up about 50% year-to-date and is included in several analysts' top picks for 2025. The ETF XLY is heavy on Amazon (22.89% weight), followed by Tesla (17.81%). Several analysts are bullish on Tesla too. Tesla stock has surged 27% past month and 3.8% past week.
Energy – United States Natural Gas ETF (UNG - Free Report)
Cold weather at the year-end often leads to higher demand for heating oil and natural gas. Plus, there may be year-end adjustments to energy reserves.Natural gas prices just hit the highest level in two years amid concerns of a cold-blast winter in the northern hemisphere. Signs of a U.S. lower supply, as indicated by EIA data, further contributed to the price surge.