Can Wall Street Recreate the December Rally Magic in 2025?

December has historically been Wall Street’s festive month. Every year like clockwork, traders and analysts dust off their calendars to chase what the market calls the Santa Claus Rally—a predictable surge that typically kicks off in the final trading days of December and carries through early January. The numbers tell a compelling story: over the past four decades, U.S. stocks have climbed in December roughly 3 out of every 4 years. When they do rise, the S&P 500 delivers an average return of 1.44%, making it the second-strongest month on the calendar after November. [Source: TradingView; 2025 EURO STOXX 50, S&P 500]

Across the Atlantic, the pattern runs even stronger. The Euro Stoxx 50, which tracks Europe’s largest companies, has finished December higher in 71% of all years since 1987—a strike rate that dwarfs any other month. Its average December gain sits at 1.87%, just shy of November’s 1.95%. This consistency suggests December strength isn’t some anomaly; it’s woven into market DNA.

What actually drives this annual surge? The mechanics aren’t mysterious. As December winds down, institutional fund managers face a crucial decision: how do they present their portfolios to clients and shareholders? Enter “window dressing”—the practice of buying outperforming stocks and pruning laggards to make annual performance look as polished as possible. This portfolio reshuffling creates mechanical buying pressure in winning names, fueling the very uptrend investors come to expect.

Beyond the mechanics lies psychology. December brings festive sentiment and elevated risk appetite. When holiday cheer mingles with market optimism, investors tend to bid up equities more aggressively. It’s a cocktail of institutional necessity and human emotion—powerful enough to move markets predictably.

But will 2025 play by the rulebook? Here’s where the consensus cracks. Amy Wu Silverman, Head of Derivatives Strategy at RBC Capital Markets, sounds a cautionary note. She points out that 2025’s equity performance has already broken seasonal patterns, suggesting this year might buck the December trend entirely. Her concern: don’t assume history always repeats.

Tom Lee, co-founder of Fundstrat Global Advisors, sees it differently—and bullishly. He highlights two catalysts: the Federal Reserve is expected to cut rates this month, and quantitative tightening is finally wrapping up after nearly three years. These combined shifts should unlock fresh liquidity into equity markets. Lee’s base case? A year-end rally in the S&P 500, fueled by aggressive catch-up buying from fund managers desperate to avoid lagging their peers.

The real question isn’t whether December can deliver—history backs that play. It’s whether 2025’s unique backdrop will honor that tradition or rewrite the script entirely.