Will Stocks Break Records in December? Market Pros Split on This Year's Rally

December is traditionally one of the strongest months for equity markets, but 2025 might tell a different story. The year-end rally phenomenon has a name in the financial world—the Santa Claus Rally—and historically, it’s delivered impressive returns. Here’s what the data reveals and what experts are debating.

The December Effect: Historical Proof

Over the past four decades, the pattern is undeniable. The S&P 500 climbs in December roughly 3 out of 4 times (74% win rate), posting an average gain of 1.44% per month. That makes December the second-best performing month annually, trailing only November’s performance.

Across the Atlantic, European traders are seeing similar trends. The Euro Stoxx 50—tracking eurozone’s top 50 companies—has closed higher in December 71% of the time since 1987, with an average return of 1.87%. December ranks as the second-best month for European equities too, just behind November’s 1.95%.

Even retail investors notice this: stock market hours during December tend to draw heavier participation, partly because of holiday sentiment and partly because fund managers are making final moves before year-end.

Why Does December Boom?

Institutional players orchestrate much of the action. Fund managers engage in what’s known as “portfolio window dressing”—buying strong performers to boost year-end results before presenting them to clients. This buying pressure, concentrated in the final weeks, inflates prices.

Psychology also matters. The holiday spirit pumps up investor optimism, while lower volatility and reduced trading activity (think black friday-style mall effects, but in financial markets) can create momentum. This seasonal uplift isn’t random; it’s the result of both technical mechanics and human behavior.

The 2025 Question: Will Lightning Strike Again?

Wall Street is divided. Some experts are skeptical. Amy Wu Silverman from RBC Capital Markets warns that 2025 has already defied seasonal patterns, suggesting the usual December playbook might not work this year.

But the bulls are confident. Tom Lee of Fundstrat Global Advisors points to a powerful catalyst: the Federal Reserve is cutting rates in December, and quantitative tightening—which has drained liquidity for three years—is ending. He expects this liquidity surge to trigger aggressive buying and push the S&P 500 higher. If managers underperform through November, December buying could be fierce as they scramble to catch up.

The battle between skeptics and optimists will likely play out across global stock market hours throughout the month. European indices could mirror U.S. gains, or diverge entirely depending on ECB policy and eurozone economic data.

Bottom line: December’s historical edge is real, but 2025 remains uncertain. The conditions are set for a potential rally, but nothing is guaranteed.