Despite a strong year-to-date gain of over 23% for the S&P 500, uncertainty looms as investors question whether the traditional year-end rally, often called the "Santa Claus Rally," will materialize. Historically, the last five trading days of December and the first two of January have seen an average increase of 1.3%. However, recent signals from the Federal Reserve suggest lower-than-expected rate cuts in 2025, catching investors off guard.
The S&P 500 recently suffered its largest single-day drop since August, with eight out of eleven sectors showing losses. Rising Treasury yields, particularly the 10-year at its highest in over six months, are contributing to valuation pressure. The index's P/E ratio is currently 21.6, well above the historical average of 15.8. The narrowing market rally, once buoyed by gains in Tesla (TSLA, Financial) and Alphabet (GOOGL), might dampen holiday cheer.
