The S&P 500 index has experienced a bearish trend in the short term, dropping by about 1.3% in the past week as markets reacted to different fundamentals, such as the hawkish Federal Reserve outlook for the coming year.

Despite this trend, historical data indicates that the index might be kick-starting an uptrend just before Christmas, a move that could spill over into the early days of 2025.

Specifically, the market will likely witness the ‘Santa Claus Rally,’ which kicks off today, December 24, ushering in a bullish period that often sets the tone for the new year.  Already, the index is showing strength up 0.73%, valued at 6,017.

It is worth noting that the U.S. stock market will close earlier today at 1 p.m. EST.

This seasonal phenomenon spans the final five trading days of December and the first two of January and has historically seen the S&P 500 climb.

Since 1950, the rally has materialized 76% to 80% of the time, and over the past 73 years, the S&P 500 has posted positive returns during this period 58 times, yielding a success rate of 79.2%, according to data provided by Ryan Detrick, the Chief Market Strategist at Carson Group on December 23.

The average index gains around 1.3% to 1.4% during this stretch. More recently, from 1999 to 2023, the rally occurred 76% of the time, delivering an average return of 1.7% when it happened.

What next for S&P 500

Amid the recent short-term correction, the S&P 500 has largely remained bullish, fueled by post-election optimism. However, Wells Fargo (NYSE: WFC) analysts have warned that the market could be ripe for a pullback beneath this optimism.

Through December 17, the S&P 500 posted a modest 0.38% gain for the month, contrasting with declines in other major indices. For instance, the Dow Jones dropped 3.12%, and the Russell 2000 fell 4.06%.

The banking giant attributed this divergence to weakening economic surprises, as the Bloomberg U.S. Economic Surprise Index shows. The firm cautioned that investors are overly focused on a potential future rebound, ignoring disappointing current data—a disconnect that may need to be addressed soon.

“We think now would be a good time for disciplined investors to make sure that their portfolio allocations to equities are not above recommended allocations, especially with long-term interest rates offering a solid alternative,” the firm noted.

S&P 500 2025 outlook 

It’s worth noting that sustaining gains above the 6,000 point remains the key focus for bulls moving ahead, a factor supported by several analysts. 

As reported by Finbold, Wells Fargo has a target of 7,000 for the end of 2025, while HSBC sees the index reaching 6,700 over the same period. At the same time, Oppenheimer’s chief investment strategist, John Stoltzfus, has set a high target, projecting that the index is likely to clinch 7,100 in the next 12 months.

Given the index’s recent momentum, the technology sector will likely remain key in sustaining the momentum beyond the ‘Santa Claus Rally.’ To this end, earnings growth in industries like artificial intelligence (AI) and technology will likely shape the index in 2025.

Additionally, consumer spending remains crucial, but inflationary pressures could dampen demand. Geopolitical risks may also disrupt supply chains and investor confidence.

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