December Surge or Trap? S&P 500 and Euro Stoxx 50 Face Pivotal Month Ahead

The calendar says it’s rally season, but 2025 might flip the script. For four decades, December has been Wall Street’s favorite month. The S&P 500 climbs roughly 74% of the time when December rolls around, averaging 1.44% gains—a record only beaten by November’s 1.95%. Across the Atlantic, European blue chips show even stronger seasonal tailwinds. The Euro Stoxx 50 has finished December higher 71% of the time since 1987, with an impressive 1.87% average monthly return. The pattern is clear: as the year winds down and stock market hours wind up with holiday trading, equities tend to push higher.

Why does December deliver? The so-called Santa Claus Rally typically drives gains during the final five trading days of December plus the first two days of January. Seasonax analyst Christoph Geyer attributes this to institutional behavior—fund managers rushing to rebalance portfolios and lock in performance before year-end reviews hit clients’ desks. This “window dressing” creates concentrated buying pressure on momentum winners. Beyond mechanics, psychology matters too. Holiday sentiment breeds optimism. Risk appetite inflates. Black Friday deals may fade by December, but stock market appetite appears just warming up.

The 2025 wildcard: Will history repeat? This year throws a wrench into expectations. Amy Wu Silverman from RBC Capital Markets warns that early 2025 U.S. equity performance has already shattered seasonal norms, suggesting the Santa Claus Rally might be MIA. But Tom Lee at Fundstrat Global Advisors sees a different setup: with the Federal Reserve potentially cutting rates this month and quantitative tightening ending after nearly three years, liquidity conditions are primed to spike. Lee forecasts the S&P 500 positions itself for a dramatic year-end surge, with aggressive catch-up buying imminent if December delivers strength.

The verdict? Decades of data favor the bulls. Yet 2025 is proving anything but conventional. Watch the opening bell closely—December’s first week will signal whether Santa is boarding his sleigh or taking an unscheduled break.