Market risks threaten to derail Santa Claus rally

History shows that missing a Santa Claus rally could spell trouble for the year ahead. Jeffery Hirsch, editor in chief of the Stock Trader's Almanac, joined TheStreet to discuss the potential market risks that could derail the annual surge.

Related: The Santa Claus rally has started early this year

Full Video Transcript Below:

CONWAY GITTENS: All right. Let's talk the January effect. It held this year. What are the possible outsized events that could impact 2025?

JEFFERY HIRSCH: The January barometer, which I think we're talking about here, is as the S&P goes in January, so goes the year. That's something my father, Yale Hirsch, invented in 72 and also the Santa Claus rally, which is the last five days of the year and the first to the new year. We put that together with the first five days and create this January indicator trifecta. So when all three hit, all are positive. The market's up 90.6% of the time, 29 out of 34 years, 17.7% on the S&P average gain. What derails that could be something systemic, could be some disappointment with economics. We'll start looking for Santa Claus rally to show up or not.

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As my father said, if Santa Claus should fail to call, bears may come to broaden wall. Right where we are here. So years when Santa Claus rally has failed to materialize, we see markets either flat or a bear markets or at least times when you could buy stocks cheaper during the year. So I think something geopolitically or even politically domestically could rock the markets. But other than some disappointment out of the market leading companies the Mag Seven or something that lasts long, I don't see much that's going to derail it. But if it does, we may have to go back and figure out what derail did with a little bit of hindsight. But if we see all three of those down, I'll start getting a little bit less bullish.

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This story was originally published December 20, 2024, 10:44 AM.