No Santa rally leaves S&P 500 vulnerable in 2025, BofA says

Investing.com -- The S&P 500 ended December 2024 down 2.5%, missing its usual year-end Santa Claus rally.

Historically, this seven-day period between late December and early January is bullish 79% of the time, with an average return of 1.6%. But this year, the index slipped 0.53%, signalling a riskier start to 2025.

Without a Santa rally, January becomes a potential weak spot. BofA noted that in years without this rally, January has a 52% chance of being negative, with an average decline of 0.29%. A down January could trigger a bearish "January Barometer," which often predicts a tough year for equities.

Key technical levels are now in focus. The SPX is testing support near the 2024 Presidential election gap at 5864-5783. A breakdown could form a bearish head-and-shoulders pattern, exposing support at 5700-5650. However, breaking above resistance at 6017-6050 could negate the bearish outlook.

The lackluster start to 2025 adds uncertainty for the first half. Historically, without a Santa rally, the S&P 500 sees weaker first-quarter returns, averaging a 0.69% loss. The first half fares slightly better, up 57% of the time but with negligible returns.

The market's trajectory in January will set the tone for a volatile year, especially as 2025 begins the Presidential Cycle, which traditionally carries mixed outcomes.

Source: Investing.com