Will Santa Claus Rally Set In for 2025? 4 Best ETF Areas to Explore

Year-to-date, Wall Street is in decent shape (if not great), with the S&P 500 Index up about 16.2% in 2025. Now, as we enter the final stretch of the year, the Santa Rally is about to set in. The "Santa Claus Rally" refers to the stock market's tendency to rise during the final trading days of December and the first two trading days of January.

However, historical data suggests that the Santa Claus rally occurs from December 15^th until January 5^th. In other words, if history is any guide, the time frame for the Santa Claus rally has already begun.

However, Wall Street has experienced a slump so far, with the SPDR S&P 500 ETF Trust SPY down 0.7% over the past five days, mainly due to less-dovish signals from the Fed and ongoing overvaluation concerns in the artificial intelligence (AI) space. Let’s see if the rally gains momentum this week.

Inside Santa Rally

Historically, this period has yielded positive returns approximately 80% of the time, with the S&P 500 averaging a gain of about 1.3% during these seven days, per Investopedia. Citadel Securities also noted the S&P 500 rose 75% of the time in late December since 1928, averaging 1.3% gains, as quoted in a Bloomberg article and published on Yahoo Finance.

Factors like investor optimism, institutional activity and tax considerations are credited for this pickup in the equity rally. The holiday season often brings increased optimism among investors, leading to more buying activity.

In fact, some even believe that investors buy stocks during this period to cash in on another strong equity event, known as the January Effect, which takes place soon after. If we dig a little deeper, the consistency of this rally becomes more visible.

Are We Primed for a Santa Rally This Year?

Historically, Wall Street tends to perform strongly in December. Specifically, the S&P 500 has exhibited positive returns in December 74% of the time since 1928 (per a Reuters article published in 2021), which is more frequent than any other month.

With just a handful of days remaining until Christmas and moderately strong sentiments (though a less-dovish Fed for 2026 and lingering AI worries may slightly dampen the festive mood on Wall Street), it seems likely that a modest Santa Rally could take shape.

There is optimism surrounding a resilient economy even after tariff threats and corporate profits have been strong. Unless a major shock emerges, the powerful seasonal tailwinds and cleaner equity market positioning should facilitate a modest Santa Rally this year, according to Goldman Sachs, as quoted on a Bloomberg article and published on Yahoo Finance. 

If these were not enough, softer November inflation should act as a tailwind. U.S. inflation pressures eased in November, offering a welcome surprise to investors. The Consumer Price Index (CPI) rose 2.7% year over year, below the 3.1% increase economists had forecast, as quoted on Yahoo Finance (read: November Inflation Cools: ETF Strategies to Play).

Right before the Santa Rally period, Micron MU shares surged post earnings release on high demand for AI memory. This piece of news was extremely well-timed as the industry has been mulling over AI payoff worries due to massive investments, rich valuations and circular financing in the space. Micron also expects the total addressable market for high-bandwidth memory to hit $100 billion by 2028, growing at a 40% compounded annual growth rate (as quoted on CNBC).

Moreover, despite AI worries, investors have poured about $100 billion into U.S. stocks in the past nine weeks, continuing a solid trend of inflows seen throughout 2025, according to Goldman Sachs, as quoted by the above-mentioned Bloomberg article. The firm’s measured gauge of investor sentiment is now at the most bullish level since April.

ETFs in Focus

Against this backdrop, we have highlighted a few exchange-traded funds (ETFs) likely to gain from the Santa Rally in 2025.

Technology – Roundhill Magnificent Seven ETF MAGS

The "Magnificent Seven" tech giants—Tesla, Amazon, Alphabet (Google), Meta Platforms (Facebook), NVIDIA, Apple, and Microsoft — are still strong bets. Micron’s results strengthened the case for solid appeal for AI. MAGS was up 0.5% last week.

Metal & Mining – State Street SPDR S&P Metals & Mining ETF XME

Mining stocks have been in great shape lately. Metal prices—especially gold, silver and copper—are hitting highs on strong demand, tight supply and safe-haven flows, boosting miners’ profits. Additionally, industrial demand (e.g., for copper in tech and energy) plus geopolitical uncertainty as well as the Fed rate cuts are acting as added tailwinds. XME was up 1.9% last week. 

Airlines – U.S. Global Jets ETF JETS

The fund gained about 1% last week. And why not? This Christmas and New Year's holiday period is expected to be the busiest on record.More than 122 million people are likely to travel between Dec. 20 and Jan. 1 – marking a 2.2% uptick from last year's record high of 119.7 million travelers, according to AAA, as quoted on ABC News.

Defense – iShares U.S. Aerospace & Defense ETF ITA

Defense stocks are performing great lately, thanks to increased global and domestic military spending, heightened geopolitical tensions, and government initiatives for homegrown production. ITA was up 1.6% last week.

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This article originally published on Zacks Investment Research (zacks.com).

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