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A Year Without Santa

Posted January 03, 2025

Greg Guenthner

By Greg Guenthner

A Year Without Santa

We enjoyed a decent bounce to start 2025.

But I suspect traders are still reeling from a rougher-than-expected holiday trading season.

Yes, the averages have recovered some of their lost ground. Crypto firmed up following a holiday pullback. And some of the sluggish growth names are catching a big break into the weekend.

But the bulls look a little worn down as the Santa Claus rally runs out of time.

So, with almost two days of 2025 in the books, let’s recap the holiday action and figure out what the heck is going on in this manic market.

Santa Was a No-Show

The final trading days of 2024 failed to produce the melt-up rally we were all anticipating. Speculative growth stalled out, and many of the stronger snapbacks started to fail.

Despite Santa’s absence over the holiday break, he still has a few more hours to deliver the goods. Technically, the Santa Claus rally ends on the second trading day of the year – today!

Of course, the S&P 500 could rip more than three percent by this afternoon. But I wouldn’t count on it. Plus, the U.S. benchmark hasn’t posted a single-day gain of that magnitude in over two years.

Santa Claus rally or not, the bulls are on edge as the market hits some holiday turbulence. 

Interest rates rose at an alarming rate over the holidays. The U.S. Dollar just capped its weakest three-month period of the year with an unseasonably strong 7% gain. And market breadth stinks…

Bulls Don’t Feel Like Playing

When we discuss market breadth, all we’re talking about is participation. Are more or fewer stocks trending higher with the averages?

The more stocks participating in an uptrend, the healthier the bull market. Unfortunately, most stocks aren’t keeping up with the major indexes. In fact, the numbers have been downright shocking…

Here’s a fun stat from BofA: The percentage of stocks outperforming the S&P is at an all-time low. That’s right, never in the stock market's history have so many issues lagged their benchmark.

Here’s another breadth measure that caught our attention: A mere 20% of S&P 500 stocks are trading above their 50-day moving average…

We use a stock’s 50-day average to measure its intermediate trend.

Based on the chart, four out of five S&P 500 components are failing to keep pace with the bull market. That jibes with the BofA stat and the handful of failed breakouts in the market's small-cap, biotech, and speculative growth areas.

I doubt stock market bulls envisioned such a precarious start to the year. More individual names must kick into gear and head higher. If they don’t, watch out for the stock market averages to catch lower with most of the market.

What’s Next for the New Year?

The beginning of January is looking a tad bleak. But I don’t think Santa’s absence matters too much.

Don’t get me wrong, it’s valuable information. But it simply confirms what rising rates and deteriorating breadth have been hinting for months.

Plus, the stock market never even experienced a 10% pullback last year. So it’s no wonder the bulls are feeling tired.

Perhaps we’ll finally witness a proper bull market correction in the coming weeks and months. The timing is right as the market is heading toward one of the worst quarters during the four-year presidential cycle, according to Carson Research’s Ryan Detrick. The next three months could be 2025’s weakest.

For now, we’ll see if some of these bounces stick into the weekend. If we get a solid push and crypto looks constructive heading into Monday, we might enjoy a little pre-earnings season rally for a couple of weeks.

But we need to see some follow-through. That's something this market has been desperately missing lately! I recommend patience to see how the market develops heading into next week.

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