Will There Be a Santa Rally?

Will There Be a Santa Rally?
Or was the September Rise the Highlight of the Year?
 
Stocks are at an all-time high, making a lot of us feel comfortable, if not complacent, heading into the final quarter of the year. However, Santa Rallies are not guaranteed to be big winners. In 2008 and 2018, Santa put coal in investors’ stockings. Just three years ago, the S&P 500 lost -19.44%. The Magnificent 7 were some of the worst performers of that period, down by -50% or more, with Tesla plunging -67%. 

You don’t even have to go back to 2022. In April, Nvidia sank to under $100/share.
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Source: MSN.com (c) Microsoft. 2025. Used with permission.

What’s causing the volatility on Wall Street? Will stocks just keep ringing in new highs? Can we make an educated guess as to whether 2025 will experience great gains in the last quarter, and what lies on the horizon for 2026?
 
Here are the things we’ll cover in this blog.
 
Average Santa Rally Performance
Was There a Santa Rally in 2022?
Santa Rallies When Stocks Keep Hitting New Highs (like 1999, 2000 & 2007)
Corporate Buybacks Are at an All-Time High
December 2018
Bewitching October Trends
 
And here is more on each topic.
 
Average Santa Rally Performance
The Santa Rally – the 3-month period of October through December – is a historically strong quarter, featuring almost 9% gains on average over the last five years. The 10-year period is lower, at under 5.5%, largely due to the terrible December performance of 2018. (We’ll discuss this below.) The 20-year period is still positive, but even lower, at less than 4% gains over the quarter, on average. See the chart below for the monthly performance of the S&P500 over the last 5, 10 and 20 years. Of course, the down years get swallowed up in the average, so let’s dive into the details of the last correction in 2022.

Was There a Santa Rally in 2022?
2022 was a down year on Wall Street, when the S&P500 dropped -19.44%. October and November started out strong in 2022, with impressive gains of over 13% in the two-month period. December lost -5.90%. All told, the quarter was a gain of over 7.0%. However, that wasn’t enough to recover the losses of the year. While the Magnificent 7 were some of the worst performers in 2022 (see chart above), they have been on fire since then.
 
The S&P500 has more than doubled over the last five years. 2023 and 2024 were spectacular years on Wall Street, with gains of 24.23% and 23.31% in the S&P500 (not including dividends), respectively. Many target date retirement funds have lost money over that same period. Do you know what you own in your retirement account?
 
The trend keeps moving up, up, up, despite the down years. However, Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla remain volatile. In April of this year, you could have purchased Nvidia for under $100/share. Tesla was down -54.6% on March 10th. I’ll discuss how to manage this volatility in the Bottom Line section below. We also teach this in our Financial Freedom Retreat.
 
Santa Rallies When Stocks Keep Hitting New Highs (like 1999, 2000 & 2007)
Everyone partied like it was 1999 during that year’s Santa Rally, pushing the S&P500 up almost 14% in the last quarter. However, the index sank -10.14% in 2000. The NASDAQ Composite Index, where the hottest Dot Com stocks were listed, dropped -78% between the highs of March 2000 and the lows of October 2002. In 2000, GDP growth decelerated to 1% by the 4th quarter but was still positive. However, because stocks were overpriced, the whales of Wall Street took their gains off the table. Equities today are almost as elevated as they were in 2000 and are far higher than the Great Recession and the Great Depression, as you can see in the chart below.

CAPE Ratio data provided by Professor Robert Shiller, Nobel Prize winning economist.

 
In 2007, before the Great Recession, stocks hit an all-time high in October before retreating -5.26% in November and December. 2008 was a terrible year on Wall Street. The S&P500 plunged -38.49%, and the Dow Jones Industrial Average was off by -55% between the high of Oct. 2007 and the low of March 2009. The interesting thing about the Great Recession is that debt, leverage and slow growth were all triggers for the global financial crisis. Today debt and leverage are far higher than they were then, as you can see in the chart below.
 

Even though Wall Street is on fire, the economy is predicted to slow in 2025 to 1.6% GDP growth from last year’s 2.8%. Slow growth is a negative indicator for continued strength in stocks, as are debt, leverage and expensive prices. Despite the rather tepid expectation, we might see another 3rd quarter surprise when the GDP numbers are released on Oct. 30, 2025. GDPNow is projecting that the 3Q 2025 GDP growth could be as high as 3.8%. With the government shutdown still happening, data is not being refreshed. So, it’s anyone’s guess whether the numbers will be that strong. 3.8% GDP growth will excite retail investors. However, the whales will be looking to see what 4Q has in store when determining whether to buy or sell.
 
Corporate Buybacks Are at an All-Time High
Corporate buybacks hit a new record in the 1Q of 2025. Apple, Alphabet, Meta, and Nvidia are all engaged in robust share purchases of their own stock, accounting for almost 27% of share repurchases in 2Q of 2025. Apple is the leader by far as you can see in the chart below.

2Q 2025 share repurchases were down a bit from the 1st quarter. However, Howard Silverblatt, the senior index analyst of S&P Dow Jones Indices wrote in an email on Sept. 17, 2025, that “Q3 2025 is expected to spring back to near the record levels.” This is positive for the Spring Rally for two reasons. Buying activity increases share prices, which makes happy investors chase the gains. Secondly, the reduction in share count increases the earnings per share and lowers the price earnings ratio. That makes the stock, even at a higher price, look like a better bargain. These phenomena have had a hand in the September 2025 jump on Wall Street.
 
Companies with a lot of cash (like the multi trillion-dollar technology companies) have considered share repurchases to be a very good strategy over the past decade, which has provided a great deal of support for stocks. However, none of this helped much in April of this year when the tariff scare put buying on hold from investors and corporations alike. While robust share repurchases in Q3 helped to push stocks to ever-increasing all-time highs in September, there is a great deal of uncertainty and concern about an increase in unemployment and persistent/problematic inflation, which creates volatility on Wall Street and reticence in the C-Suite. AI and technology continue to be the bright spots, while retail, real estate and health care continue to struggle.
 
December 2018
December 2018 was the worst December in U.S. stocks since the Great Depression. Stocks dropped -9.2% in one month. One of the catalysts of the drop was a cessation of corporate buybacks from Apple. Apple was concerned about missing their end-of-year revenue forecasts due to fierce competition from Huawei. They ceased their buybacks in December 2018 without notice or warning. Learn more in my Jan. 3, 2019, blog about Huawei knocking Apple to the #3 spot in global smart phone sales.
 
Bewitching October Trends
October tends to have gains, as high as 1.79% on average over the last five years. However, it’s known as the bewitching month because when it doesn’t have positive performance, the results can be devastating. October was the beginning of the Great Depression. It also hosted Black Monday 1987.
 
Bottom Line
With a slowing economy, trade wars, inflation, high housing costs, increasing unemployment and global tension, there is no guarantee that this year’s Santa Rally will bring investors what we want for Christmas. With stocks at an all-time high, and recent examples of swift and severe plunges, our best protection is to rebalance, capture gains and make sure that we have an age-appropriate, properly diversified plan in place. Typical recessions can take a decade or longer for a full recovery. (It took the NASDAQ Composite Index 15 years to return to the March 2000 highs.) 21st Century recessions have shattered the old trope of Buy and Hope.

Economists aren’t predicting a recession this year or next. However, some have pointed out that many states are already experiencing an economic downturn. Mark Zandi, the senior economist at Moody’s Analytics, posted on X on Sept. 29, 2025, writing, “The economy’s performance and near-term prospects remain far from bright. Recession risks… remain uncomfortably high.”

Corporate buybacks were strong in the 3rd quarter but can turn on a dime without warning. While it’s possible that stocks can continue to rise with the Santa Rally trend, it’s not a given. It’s better to be ahead of the news than wait until an economic storm has wiped out our gains to think about fixing our financial house.

With stocks at an all-time high, now is a great time to make sure that we have an age-appropriate, properly diversified plan in place. The great news is that we can also capture gains at an all-time high, while making sure that we have exposure to the hottest industries and are underweighting the paper losses and underperformance of the sectors that are struggling.
 
 
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Receive the best price when you register with friends and family. Visit NataliePace.com to learn more. Call 310-430-2397 or email [email protected] for pricing, additional information and to register.

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Natalie Wynne Pace is an Advocate for Sustainability, Financial Literacy & Women's Empowerment. Natalie is the bestselling author of The ABCs of Money (6th edition) and The Power of 8 Billion: It's Up to Us, and is the co-creator of the Earth Gratitude Project. She has been ranked as a No. 1 stock picker, above over 835 A-list pundits, by an independent tracking agency (TipsTraders). Her book The ABCs of Money remained at or near the #1 Investing Basics e-book on Amazon for over 3 years (in its vertical), with over 120,000 downloads and a mean 5-star ranking. The 6th edition of The ABCs of Money and the 2nd edition of Put Your Money Where Your Heart Is (2nd edition) are the most recent releases of these books. Follow her on Instagram. 
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Natalie Pace's easy as a pie chart nest egg strategies earned gains in the last two recessions and have outperformed the bull markets in between. That is why her Investor Educational Retreats, books and private coaching are enthusiastically recommended by Nobel Prize winning economist Gary S. Becker, TD AMERITRADE chairman Joe Moglia, Kay Koplovitz and many Main Street investors who have transformed their lives using her Thrive Budget and investing strategies. Click to view a video testimonial from Nilo Bolden.​​

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Important Disclaimers
Please note: Natalie Pace does not act or operate like a broker. She reports on financial news, and is one of the most trusted sources of financial literacy, education and forensic analysis in the world. Natalie Pace educates and informs individual investors to give investors a competitive edge in their personal decision-making. Any publicly-traded companies, funds or projects mentioned by Natalie Pace are not intended to be buy or sell recommendations.

ALWAYS do your research and consult an experienced, reputable financial professional before buying or selling any security, and consider your long-term goals and strategies. Investors should NOT be all in on any asset class or individual stocks. Your retirement plan should reflect an age-appropriate, diversified wealth plan, which has been designed strategically, with the assistance of financial professionals who are familiar with your goals, risk tolerance, tax needs and more. The "trading" portion of your portfolio should be a very small part of your investment strategy, and the amount of money you invest into individual companies should never be greater than your experience, wisdom, knowledge, patience and diversified strategy.  
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Information has been obtained from sources believed to be reliable. However, NataliePace.com does not warrant its completeness or accuracy. Opinions constitute our judgment as of the date of this publication and are subject to change without notice. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument.