There’s no way to sugar-coat it. The market has looked lousy the past few weeks. NASDAQ did hit a new high in mid-December, but stocks have struggled since the Dow and S&P hit new highs the first week of December. And Small Caps? Fuhgeddaboutit. They’ve been the worst. This is not supposed to happen at this time of the year. This is one of the historically best seasonal periods and small caps usually outperform large caps.
Bullish December was down, topped off by losses on the last four days of the year in a row. And now 2025 is opening with a whimper. In addition to small cap weakness market breadth has not been great with declining stocks outpacing advancers in the past few weeks, as well as more new lows than new highs. Rising 10-Year Treasury yields above the 4.3% threshold we have discussed many times also appear to be giving stocks the jitters. There’s a lot going on here but let’s focus on the Santa Claus Rally and our January Indicator Trifecta for today.
We have reviewed our January Indicator Trifecta and its components several times over the past couple of months. It is also covered in depth on page 20 of the 2025 Stock Trader’s Almanac. We invented this January Trifecta in 2013 by combining our Santa Claus Rally (page 118) and our January Barometer (page 18), both invented by our late founder Yale Hirsch in 1972 published in the 1973 Almanac, with the age-old First Five Day’s Early Warning System (page 16).
Since 1950, when all three January indicators, Santa Claus Rally (SCR), First Five Days (FFD) and the full-month January Barometer (JB) are up, the January Trifecta, S&P 500 was up 90.6% of the time (29 out of 32 years) with an average gain of 17.7%. When one or more of the Trifecta is down the year is up 59.5% of the time (25 of 42) with a paltry average gain of 2.9%.
Wall Street is hyper focused on the Santa Claus Rally, which is poised to be down. With one day left SCR is down -1.77% at today’s close. After rallying 1.1% on day one of the SCR, S&P has been down the last 5 days in a row. It’s not out of the realm of possibility for the S&P to rally 1.8% (or 105.53 points) tomorrow and record a positive SCR, but if that does not happen it is not the end of the world or bull market either.
Sure, the market does better in years with a positive SCR. But the full-month January Barometer holds the key. All you have to do is look back to last year for proof. Both the Santa Claus Rally and the First Five Days were down in 2024, but the January Barometer was positive and 2024 turned out to be a banner year. As we said in our
January 11, 2024 issue: “
even though the SCR and FFD were negative, a positive January Barometer could salvage the Trifecta and boost prospects for full-year 2024.”
When SCR is down and the JB is up, regardless of what the First Five Days do, S&P is up 6 of the 7 years since 1950 with an average full year gain of 18.2%. 1994 was the one down year, but it was essentially flat with a small decline of -1.5% for the year. Here are all the January Trifecta scenarios when SCR is down. The first table includes all years SCR was down since 1950 then in order of best to worst.