Stock Trader’s Almanac sees jollier than usual Santa Claus rally for small caps

Stock markets tend to rally in the run-up to Christmas. / Photo: Shutterstock

Small-cap stocks typically outperform the broader market from the Tuesday before Thanksgiving until the second trading day of the new year, points out Jeffrey Hirsch of Stock Trader’s Almanac. Historically, they have delivered stronger returns than their large-cap peers during this period, even with the so-called Santa Claus rally.

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Investors should buy small-cap stocks starting from the Tuesday before Thanksgiving — this year the holiday falls today, Thursday, November 28 — and hold them until January 3, 2025, Jeffrey Hirsch, editor-in-chief of Stock Trader’s Almanac, which tracks cyclical patterns in the stock market, told CNBC. Citing historical data, he noted that during this period, the S&P 500 has typically climbed about 2.6%, while the small-cap-tracking Russell 2000 has seen an average gain of 3.3%.

For investors

Hirsch believes that expectations of lighter corporate regulation under Donald Trump‘s administration, coupled with ongoing Fed rate cuts, are supportive of equities, particularly small caps. Shares of smaller companies struggled throughout the whole rate-hike cycle, he notes. However, starting this autumn, the Fed has already lowered rates twice: first in September — marking the first cut since 2020 — and again in November. The next rate decision is scheduled for December 17-18.

Trump’s election victory remains a driver of gains for small caps, Hirsch added. On November 7, the day after the election results were announced, the S&P SmallCap 600 index reached an all-time high. The Russell 2000 also hit a historical peak, on Monday, November 25, beating its high mark from November 8, 2021. On Wednesday, when major indexes like the S&P 500, the tech-focused Nasdaq Composite, and the blue-chip Dow Jones retreated, the Russell 2000 managed to post a modest gain.

These factors, combined with the Santa Claus rally — a seasonal surge in stocks from before Christmas through early January — could boost small caps, Hirsch concluded.