The Santa Claus Rally is usually one of Wall Street’s favorite holiday traditions. After Thanksgiving, stocks are higher after volatility subsides and December often provides one of the strongest months of the year.
This year, strategists say, Santa may not show up.
“Anything [of the months this year] They’ve behaved seasonally,” Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, told Yahoo Finance.
And there are many reasons. The year has offered reminder after reminder that this is not a normal market cycle: The DeepSeek downturn in February, President Trump’s surprise tariff announcement in April, and months of hand-wringing over AI valuations created a roller-coaster ride for investors that pushed stocks to record highs before a volatile recovery in recent weeks.
It’s been a year when the traditional playbook hasn’t worked because the rules of the game are changing in real time. AI has introduced a level of disruption and uncertainty that strategists say is fundamentally different from anything in the past decade.
That means volatility could be a big part of the story this December.
“I don’t know if we’ll get that Santa rally, but we’ll definitely get another volatility pothole or a rally in volatility,” Silverman said, noting that there is more bearish sentiment in the options market as investors buy more downside protection rather than lean on seasonal strength in equities.
Omar Aguilar, CEO and chief investment officer of Schwab Asset Management, sees similar risks playing out beneath the surface.
“We see a lot of dispersion and a lot of inconsistency on a lot of things,” Aguilar told Yahoo Finance on Monday, pointing to the uneven way new macro data came out after the government shutdown and early signs of leadership rotation in sectors.
“We’ve seen the beginning parts of that momentum trade unwinding,” he said.
Megacap technology has swung sharply in recent weeks, fueling both the market’s rallies and its pullbacks. As a result, the setup for the classic December advance is not as clear as it usually is.
“The opportunities for a catalyst that will boost the market don’t look as strong this time around,” Aguilar said.
And while a possible Fed rate cut could swing sentiment, he said that’s not a guarantee either: “Maybe a Fed rate cut could put that extra piece to drive the market. But it’s still not clear that that will happen in December.”
Rate-cut expectations have swung dramatically in recent months, and stocks have tended to move in lockstep with Fed outlook changes.
