It looks like Santa was a no show this year – again.
You’re likely familiar with what’s called the “Santa Claus rally.” This surge in the market typically takes place during the last five trading days of one year and the first two trading days of the next.
Since 1950, this seven-day time frame has been good to stocks. The S&P 500 is up 79% of the time during this period with an average return of 1.3%. Considering the index returns about 10% on an annual basis, a 1.3% gain in just a week is quite impressive.
But for the second year in a row, Santa didn’t show up for his year-end rally. In 2023, the S&P 500 lost nearly 1% during those seven days. And in 2024, the index fell by 1.1%.
The good news is that the weakness didn’t affect the market’s yearly performance. Overall, stocks gained more than 20% in 2024. And we could very well see the same situation here in 2025…
Many catalysts are at work that could set stocks up for another double-digit gain. One such catalyst will be the change in administration…
On January 20, the new GOP-led administration will take full control of the government. We’ll likely see some big changes immediately. The two biggest potential positives could come in the form of lower taxes and less regulation.
Taxes and regulations tend to increase costs for both businesses and individuals. So if the new government plans to pull back on both, that would mean more money in the pockets of consumers – which make up two-thirds of the U.S. economy.
According to consensus from Wall Street analysts, the outlook for the market in general is bullish for 2025. Regular readers know I don’t put too much faith in the big firms’ predictions, as they don’t always have the average investor in mind when they publish their estimates. But when the masses are all looking for higher stock prices, they tend to make it happen.
According to FactSet, the consensus year-end target for the S&P 500 is 6,715. That would be a gain of about 14% from where the index began this week.
I believe this is not only possible, but highly likely during the next 12 months.
As I have always said, it’s impossible to know exactly where the market will end the year. But I like to give my best educated guess as to how high it can rally during the year…
So today, I’m saying that I believe the S&P 500 will be up at least 20% at one point during 2025.
Outside of the potential for lower taxes and regulation, there are also earnings to consider. Wall Street expects earnings to increase by 15% in 2025 to a new record high.
If this is the case, then a 20% gain at some point in 2025 will be a given. That said, there could also be a 10% correction before that happens. Or we could see some sort of “black swan” event that takes everyone by surprise.
So here’s my strategy to prepare for a strong year in the market…
Focus on sectors and stocks that are most likely to outperform.
Use pullbacks as opportunities to establish new positions.
Look for new emerging opportunities.
Let’s make the most of the New Year and start getting in position for prosperity now.
Here’s to the future,
Matt McCallEditor, Market Insights
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