Nasdaq, Dow Jones… Santa hasn’t come and that worries Bank of America

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– Stock market crash, fall in stock prices

Nasdaq, Dow Jones, S&P 500… For once, Wall Street really didn’t spark at the end of 2024. The Nasdaq 100, an American stock index rich in technology stocks, was almost stable (+0 .39%) in December. The Dow Jones plunged 5.27% and the S&P 500 (benchmark stock index, the most followed by the financial community) stumbled 2.5%. Furthermore, if we observe the variation of these three equity indices cumulatively over the last five days of the year and the first two days of January (which roughly corresponds to the end-of-year festivities period), we observe a drop in stock prices.

However, this last development is unusual, since over this period of seven days analyzed over 21 years (during the 1950s and 1960s) in 1972 by Yale Hirsh in the Stock Trader’s Almanacthe American stock market (measured with the S&P 500 index) gained on average 1.5%. A phenomenon then nicknamed the Santa Claus rally, which has persisted, since the end of the Second World War, the average gain of the S&P 500 recorded during this seven-day period stands at nearly 1.5%, for an equity market increasing more than 75% of the time.

How to explain the phenomenon of the Santa Claus rally on the stock market?

Several reasons are generally given to explain this phenomenon of the Santa Claus rally on the stock market, such as the positive state of mind aroused by the festivities, the holidays of institutional investors (which reinforce the relative weight of individual investors, traditionally more optimistic than market professionals on the outlook for stocks) or even the awarding of end-of-year bonuses to employees (or other benefits), which is all ammunition to buy American stocks and therefore push stock prices upwards…

When there is no Santa Claus rally on the stock market, the performances of the following year are on average more negative

But be careful. According to Yale Hirsh, the phenomenon of the Santa Claus rally is a good gauge of the trajectory of the stock market over the following year. Indeed, if Santa Claus does not come (if the stock market does not rise during the seven trading days in question), this increases the probability that the trajectory of the stock market will be neutral or negative during the following year. In this regard, Bank of America (American financial juggernaut) recently expressed its concern, noting that statistically, in the absence of a Santa Claus rally, the stock market month of January has a greater chance of being negative (with an average probability of 52%) than positive. And this despite the fact that most of the time, the probability of a rise in the S&P 500 in January is much higher. However, according to a well-known saying in the financial community, “as January goes, so goes the rest of the year”, which means that in the event of a decline in the stock market in January, the stock market year as a whole has more chances of being heckled…

Nasdaq, Dow Jones, S&P 500… American stocks could do less well than other world stock markets this year

While American stocks have soared by almost half in the space of just two years, the 2025 vintage could a priori be less favorable for the stock market, judges Rockefeller International, for whom Wall Street risks underperforming the other majors. global stock indices this year. It must be said that American stocks have become historically expensive both in absolute terms and in relative terms (that is to say compared to other global stock markets).

And investors’ conviction of a continuation of the upward trajectory of the American stock market (and its outperformance) appears too strong, which could hold unpleasant surprises. According to Rockefeller International, beware of the rise in the American public deficit and the prospect of an influx of government bonds on the markets, which could encourage a further rise in long-term rates, with clearings on bonds as a result. American stocks.

Discover in Momentum, Capital’s premium investment letter on the stock market, our analyzes and our anticipations on the trajectory of the American stock market. In 2023 and 2024, our selection of American stocks largely performed well, thanks in particular to the good performance of stocks like Nvidia and (more recently) Tesla (which did better than the Nasdaq over the holding period of these two great values), among others… By opting for an annual subscription, 5 months are free. To take advantage of it, simply click on the link inserted above in this article.