LIVE MARKETS-As Santa Rally sputters, attention soon turns to January Barometer

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AS SANTA RALLY SPUTTERS, ATTENTION SOON TURNS TO JANUARY BAROMETER

Tuesday marked day four of the seven-day Santa Claus Rally period (the last five trading days of the year, and the first two trading days of the new year). With Tuesday's modest weakness, the S&P 500's .SPX rolling four-day change is now around -0.2%.

Going into the final trading day of 2025, the S&P 500 is now up 17.25% year-to-date and on track to rise for a third straight year.

In any event, the January Barometer is another fun little market indicator cataloged by the "Stock Trader’s Almanac" that you will likely hear mentioned in the new year. It’s quite a simple theory - as January goes, so goes the year. If January were to be an up month, the likelihood is that the entire year will be too.

According to Jay Woods, chief market strategist at Freedom Capital Markets, since 1950, the January Barometer has only failed 12 times. That means it's running at an 84% hit rate.

Of note, the last down January was in 2022, and the S&P 500 fell 19.43% that year.

Meanwhile, Ben Emons, founder of Fed Watch Advisors, says that what may be holding Santa back is what lies ahead in January: a jam-packed schedule of macro data, earnings, the Supreme Court, and events around the Fed.

In a note out on Tuesday, Emons discusses the January Effect, which is about setting the tone for the year ahead.

"Strength in January, especially in small caps, is often attributed to the reversal of tax‑loss selling and new‑year inflows and may shed light on expectations for the economy," writes Emons.

But Emons adds that Santa and January have a subtle relationship, especially between the broad market and small caps; when the Santa rally is strong, tax-loss selling is likely exhausted, and if not, the market is on weak footing.

Month-to-date, the S&P is up about 0.7%, but down 0.2% since December 23, while small caps .RUT are down by more than 1.5% since Santa kicked off.

Thus far, volatility .VIX has been subdued in December, but Emons says "When there is little or no Santa rally while the VIX declines, historically, January-February saw a significant rise in volatility. Because such things happen during unexpected events, this January could line up that way, given the unique situation around the Federal Reserve."

According to the CME's FedWatch Tool, there is about an 83% chance the FOMC sits on its hands at its January 27-28 meeting and leaves rates unchanged.

However, Emons cautions that the planned pause "may flip again, but this time because the market worries that instability around the Fed creates too much uncertainty on top of a next shutdown that may again result in a second significant gap in economic data releases."

(Terence Gabriel)

EARLIER ON LIVE MARKETS:

FRESNILLO TAKES FTSE GOLD CLICK HERE

LONDON STOCKS MUTED ON FINAL DAY OF THE YEAR CLICK HERE

BEFORE THE BELL: EUROPE WRAPS UP 2025 ON A HIGH CLICK HERE