The “Santa Rally” is dead. Investors banking on a year-end boost to their portfolios got nothing but coal this time. U.S. markets made a small comeback on Friday—the S&P 500 rose 1.26%, the Dow Jones Industrial Average climbed 0.8%, and the Nasdaq Composite surged 1.77%.
Not bad, right? Except it actually didn’t matter. These gains barely dented the damage left behind by earlier selloffs. The S&P 500 fell 0.48% for the week, the Dow dropped 0.60%, and the Nasdaq slid 0.51%.
The Santa Rally refers to stocks rising during the last five trading days of the year and the first two of the new year. It’s like an annual tradition—only last year, Santa skipped Wall Street, even after a historic performance.
Bitcoin rallies a bit, thanks to big money
But Bitcoin bulls seem to be coming back. The apex crypto was worth $99,285 at press time, after weeks of whiplash-inducing volatility. After Bitcoin hit an all-time high of $108,850 on December 17, a series of Fed-driven selloffs dragged it down.
The central bank made a hawkish rate cut and added to the fire by saying it has no desire to associate with Bitcoin ever. But as the calendar flipped to 2025, traders got optimistic again. Retail investors are piling back in, driving up prices.
Analysts have made so many bold predictions. Some say Bitcoin will smash $150,000 by the end of Q2 2025. Some are expecting prices to at least double to $200,000 before the year is over.
January Effect: The markets’ second chance
With the Santa Rally gone, the January Effect seems primed. Sidney Wachtel, an investment banker, first spotted this anomaly in 1942. He noticed that small-cap stocks tend to outperform in January. Why? Smaller stocks usually see less trading action, but when investors start fresh in the new year, these stocks get a boost.
Research backs it up. A 1976 study found that, from 1904 to 1976, January returns averaged 3.5%, compared to just 0.5% for other months. From the mid-1980s to the 2000s, the Russell 2000 Index—your go-to for small-cap performance—averaged a 1.7% gain in January. That’s second only to December. But don’t get too excited. Since 2014, January’s gains have slowed to a measly 0.1%.
What’s behind the January Effect? Tax-loss harvesting is one theory. Investors sell losing stocks in December to offset gains, then reinvest in January. Another theory? New Year’s resolutions. People decide to “get their finances in order” and shuffle their portfolios. And then there’s the cash influx. Year-end bonuses mean more money to invest, and a lot of it goes into small-cap stocks.
Now stocks and crypto are like dance partners, especially after last year. They practically move together now. When stocks rise, crypto tends to follow. That makes the January Effect a big deal for Bitcoin.
But there’s another wildcard: Donald Trump. His inauguration is coming up, and while he has already signaled he’s genuinely pro-crypto, actions speak louder than words. If he fast-tracks crypto-friendly policies in his first 100 days, it could be a game-changer. Markets could explode. On the flip side, if he drags his feet, expect a major correction.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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