Historic Year-End Slump in U.S. Stocks
The U.S. stocks market ended 2024 on a sour note, with the S&P 500 experiencing its worst year-end performance since at least 1952. According to Bespoke Investment Group, the index fell 2.6% during the stretch from the close before Christmas to the end of the year. This drop marked a historic low for the closing days of December, which Bespoke described as “bad to a historic degree.”
Despite this dramatic slump, the S&P 500 still managed a strong overall performance in 2024, closing the year up by 23.3%. Other major indices also faced losses in the final days of the year. On the first trading day of 2025, the S&P 500 closed 0.2% lower, while the Dow Jones Industrial Average dropped 0.4%, and the Nasdaq Composite slipped by 0.2%.
Historical Patterns and Optimism for 2025
While December’s downturn unsettled some investors, historical data offers a more optimistic outlook for the coming year. Bespoke Investment Group notes that the S&P 500 has historically climbed in years following a year-end decline of more than 1%. Additionally, January has traditionally been one of the strongest months for the index, according to Renaissance Macro Research, which tracked average monthly returns since 1928.
This positive historical trend suggests that the late-2024 stumble may not necessarily signal trouble for 2025. Analysts are cautiously optimistic that the U.S. equity market could bounce back, driven by seasonal and historical factors.
Santa Claus Rally Faces Challenges
Investors are also keeping a close eye on the so-called Santa Claus rally, a seasonal phenomenon where U.S. stocks typically deliver gains during the final five trading days of one year and the first two days of the next. For 2024, the rally began on Christmas Eve and extends through the end of this week.
However, the rally appeared to falter after the S&P 500 dropped 1.6% in the last five trading sessions of 2024, leaving the index down 2.5% for December. While the rally remains in play until the week’s close, the initial performance raises concerns about its sustainability.
As 2025 begins, all eyes are on market trends and historical patterns that could influence the year ahead. With a strong overall 2024 performance despite the December decline, many remain hopeful that the new year will bring renewed momentum for U.S. equities.
