Each year, markets return to the same question: does the Santa Claus Rally still exist, and can it generate returns in an environment of volatile monetary policy, geopolitical risks and shifting stimulus cycles? What was once viewed as an almost familiar seasonal pattern is now discussed far more cautiously, as analysts ask whether December optimism can withstand the pressure of the new landscape.
The phenomenon dates back to 1972 and is attributed to Yale Hirsch, the well-known trader and analyst who observed that equity indices often rise in the final days of December. According to his findings, the Santa Claus Rally typically starts on the last Monday of the month and lasts for seven trading days. The first day is crucial, as its movement helps indicate how strong or persistent the rally might be.
Hirsch explained this not through magic but through the psychology of large capital: fund managers bought leading stocks to present attractive annual reports to clients and secure year-end bonuses. This was particularly visible in the thin holiday market, where even modest buying pressure could move prices higher. Retail investors played their part as well, directing holiday bonuses into equities and amplifying the move. The effect became part of market folklore, and December for many years was seen as a month of hope.
However, by the end of 2025, as XFINE analysts note, the environment has changed. The era of cheap money has been replaced by prolonged rate tightening, and central bank policy has become less predictable. The Federal Reserve is preparing to cut rates closer to Q1 2026 but remains wary of resurgent demand. The ECB is holding steady, while Asia waits for a global easing cycle to begin. Under these conditions, seasonality loses its role as a “rescue mechanism” and becomes a period of positional adjustment instead. Asset managers are less concerned with window dressing and more focused on securing profits ahead of potential policy shifts. Politics has added further uncertainty: after Donald Trump’s victory, markets are reassessing risks associated with fiscal decisions, trade policy and Fed communication. Even where a rally is expected, investors doubt it will turn into a sustainable trend.
Classic Santa logic assumed that thin markets amplify price action. That remains true, but the behaviour has changed. Macro releases and political statements now trigger sharp bursts followed by quick corrections. According to XFINE, traders need a different discipline in such conditions: rather than passively expecting a seasonal rise, they must distinguish between short-lived moves and genuine inflection points. Retail investors have become more careful, favouring liquidity preservation, while institutional players are shifting toward dividend strategies, gold, cryptocurrencies and artificial intelligence.
On the currency market, December rallies have always been more subdued. Low liquidity widens spreads, increases trade risk, banks reduce activity, and algorithms run on reduced volume. Many FX traders prefer to lock in profits and return to normal trading after the New Year. Cryptocurrencies have shown similar behaviour, although for different reasons. After a noticeable decline in Bitcoin and Ethereum prices and weakening interest in crypto ETFs, capital flows have become lethargic and institutional demand fragmented.
As XFINE analysts observe, December market activity has stopped being emotional and has instead turned into part of a strategic framework – current price swings are not stepping stones towards January trends but tools for risk reduction and capital redistribution.
Despite these changes, the Santa Claus Rally idea has not disappeared. The Santa effect still exists, but its force is dispersed across many assets. The rally has ceased to be calendar magic and has instead become a behavioural metric. Markets continue to respond to the desire to close the year in profit and to enter January in a positive frame of mind, but under the new regime traders need analysis more than seasonal optimism.
The Santa Rally at the end of 2025 is no longer a story about markets rising simply because December has arrived. It is a game of competing interests, where thin liquidity meets expectations and macro-political forces set the tempo. XFINE believes that profits are still attainable, but only for those who understand the context and manage risk. It is equally important to recognise that markets do not hand out gifts – even when the calendar promises magic. In essence, the Santa effect is alive, but as XFINE notes, it works only for those who know how to unwrap it properly and treat seasonality not as folklore, but as a tool of analysis.
