US stocks disappoint markets with weak year-end performance. But the Santa Rally is still possible

US stocks are limping toward the finish line, leaving investors questioning whether the traditional Santa Claus Rally will make its appearance. This year’s rally window—spanning the last five trading days of December and the first two of January—opened Tuesday.

The S&P 500 ticked up by 1.1% on day one but quickly lost steam, dropping a slight 0.04% on Thursday. Futures for today point to another drop, with a projected 0.4% dip at the opening bell.

Historically, the Santa Claus Rally has been a reliable boost for markets. Since 1950, it has delivered an average return of 1.3%, far outshining the typical seven-day gain of 0.3%. The phenomenon was first flagged in the 1970s by Yale Hirsch in his Stock Trader’s Almanac.

According to Adam Turnquist at LPL Financial, a bull run during this period usually signals stronger gains ahead, with the S&P 500 averaging a January return of 1.4% and an annual return of 10.4%. So far though, Santa seems stuck in traffic.

AI leads, thematic ETFs crash, and Netflix stumbles

Even if the rally doesn’t show up, the S&P 500 is set for its biggest gain over global markets since 1997. Thanks to booming artificial intelligence developments and optimism about the US economy, it’s been a year for the books—though not without turbulence.

Thematic ETFs, which let investors target specific trends like cloud computing or renewable energy, have been bleeding money. About $6.5 billion flowed out of these funds in 2024, with the ARK Innovation ETF alone losing nearly $3 billion. AI was the year’s shiny new toy, and it sucked the oxygen out of the room.

Some investors are already chasing the next big thing. QTUM, a quantum computing ETF that has been mostly ignored for six years, saw inflows of $260 million this month. Whether this theme has staying power or will fizzle out like past trends is anyone’s guess.

Meanwhile, in South Korea, Netflix’s Squid Game failed to deliver the magic of its debut season, and the fallout was brutal. Stocks tied to the series’ success tanked. Artist United, a distributor linked to Squid Game star Lee Jung-jae, hit its daily loss limit of 30%. Wysiwyg Studios and Dexter Studios, both connected to Netflix, plunged by 25% and 24%, respectively.

Delivery Hero didn’t have much holiday cheer either. The company’s attempt to offload its Foodpanda unit in Taiwan to Uber was blocked by regulators, sending its shares down 9% in Frankfurt and hitting a four-month low.

Crypto’s rollercoaster

Crypto isn’t sitting this one out. Bitcoin has been clawing its way back from the depths of the FTX collapse, where it fell below $16,000. Now trading near $96,000, the apex crypto is miles ahead of where it started the year, but signs of a pullback are brewing.

Analysts are watching the charts closely after Bitcoin failed to break above the Fibonacci extension level of $102,734—a key psychological barrier. The weekly relative strength index (RSI) shows a bearish divergence, which tells us that the rally might be running out of gas.

If Bitcoin keeps dropping, the 20-week exponential moving average (EMA) around $81,500 is the next logical target. A deeper dive could see prices testing the 50-week EMA at $67,700, a level that lines up with the 1.0 Fibonacci retracement.

On the flip side, reclaiming $102,734 could set the stage for a run toward $150,000 by mid-2025, a level multiple analysts have had their eyes on.

The sector’s rebound has also breathed life back into crypto jobs. Blockchain firms are hiring aggressively, and new projects are popping up. For Wall Street professionals who ditched their traditional finance gigs during the crypto winter, this is vindication.

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