With the countdown clock ticking towards Christmas, some big seasonal buying activity is poised to happen on Bay and Wall streets in what stock traders sometimes refer to as a “Santa Claus rally.”
This means some stocking stuffers this year may be in the form of actual stocks from markets, which tend to see a strong positive performance around the holidays.
But like with holiday purchases, not all are wise investments, as some stocks come with risks that can actually hurt your retirement goals.
So what is it, and should you expect to see an impact on your portfolio?
What is the 'Santa Claus rally'?
The so-called “Santa Claus rally” refers to positive performances seen historically on markets around this time of year, which can feel like a gift from St. Nick for traders and people with investments like retirement savings in the stock market.
Typically, the rally occurs in the final five trading days of a calendar year, but some experts widen the scope by several weeks.
“It is an odd phenomenon that we get leading into the last few days, heading into the holidays, that markets are solid,” said Brent Joyce, chief investment strategist at BMO Private Wealth, in an interview with The Canadian Press.
“Thankfully, I would say this year there’s good reason for it, given the data that’s come out as of late and certainly the consensus view into 2026.”
The “Santa Claus rally” is typically attributed by financial experts to a combination of factors.
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Strong earnings results from companies approaching the end of a calendar year and the holiday shopping season driving up sales means many stock valuations climb sharply as a flood of investors pile on to fuel the rally.
The holiday season also means offices and firms may be a bit quieter or closed as some people take vacations. This means if there are fewer buyers on markets like Wall Street, then the ones who make a big stock purchase will stand out and drive up a more positive overall performance on the market.
The phenomenon doesn’t appear to be driven as much by the magic of the holiday season, as this is an often-predictable time of optimism for companies and the financial sector as a whole.
“November has been one of the stronger months for financial markets, particularly in U.S. stock markets. It often marks the beginning of a favourable seasonal period, sometimes referred to as the ‘Santa Claus rally,'” said Rietze Duke and Associates Wealth Management in a written newsletter.
“A period of increased investor optimism, driven by factors such as strong corporate earnings ahead of year-end, the holiday shopping season boosting economic activity, and lower trading volumes that can amplify price movements.”
Has the rally already begun?
This year, the performance on stock markets so far may make a rally harder to pinpoint, given the positive performances seen writ large in markets.
For example, one of the most valuable stock indexes in the world is the S&P 500, based in the United States, and as of publication, it has climbed in value by almost 18 per cent so far this year.
In the past month, it’s up by about 2.3 per cent.
The NASDAQ features many technology stocks, including artificial intelligence chip maker Nvidia — the most valuable company in the world.
Nvidia’s stock value has rocketed 35 per cent so far in 2025 as the AI boom continues to fuel the company’s massive growth in a short amount of time.
The NASDAQ index has climbed over 22 per cent so far this year, and three per cent in the past month, with technology companies, especially those focused on artificial intelligence, like Nvidia, driving much of that growth.
“If a Santa Claus rally does kick in this year, St. Nick’s gift bag will likely need to be full of positive tech sentiment,” The Associated Press cited Chris Larkin, managing director of trading and investing at E-Trade from Morgan Stanley, as saying.
This means a Santa Claus rally in 2025 may be determined by technology stocks specifically because they are the driving force behind much of the overall stock market gains this year.
North of the border, the Toronto Stock Exchange is up almost 30 per cent this year, and six per cent in the past month.
If a Santa Claus rally takes off, there may be a rush of investors pouring in to buy stocks before they get too expensive, but that doesn’t mean everyone should get involved.
“Successfully timing the market is notoriously difficult, even for me, so a disciplined investment approach helps avoid emotional decisions based on short-term noise,” said Rietze Duke and Associates in their newsletter.
This is why many investment advisors stress the importance of diversifying investments — be it for day-to-day stock trading or longer term retirement goals.
“It pays to be well diversified,” said James Price, a portfolio manager with MBP Sterling Partners at Richardson Wealth, in a Global News interview from November.
“It pays to own companies that are in different industries, and it pays to own equities that are in different countries in order to get as much diversification as you can.”
— With files from The Canadian Press and The Associated Press.
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