The days before Christmas and after New Year are called the 'Santa Rally' and they often give financial analysts a glimpse into the financial health of the year to come. Frances Cook explains.
I don’t know about you, but when I was younger, one of my favourite gifts was to open up a card and get a crisp, green, $20 note. If you found a pretty purple $50? Absolute jackpot.
After the year we’ve had, you couldn’t blame the adults for hoping Santa turns up with our version of such a gift. An easier time with the finances wouldn’t go amiss.
Not a miracle, just a classic December lift in the markets. Because that could be a sign of the gift we’ve all actually been waiting for; our wallets finally getting some breathing space.
You might have heard of something in the finance world called the Santa Rally. It might sound fantastical but it's not just market folklore, it’s backed by actual stats, and it can be one of the first signs of what’s coming in the year ahead. Not just for investors, but for those of us who interact with the business world, or have a job.
That means pretty much all of us.
So, what is the Santa Rally?
Historically it hits the last five trading days of December, and the first two of January. It sends sharemarket prices up, on average 1.3%.
It’s not that Santa’s elves give the market a nudge, but that a combination of people investing end-of-year bonuses, tidying up year-end financials, and just a sprinkle of silly season optimism, can lead to more people making optimistic business and investing decisions.
So it’s a useful way to test how much money is in the system, how people feel about it, and what might happen in the year ahead.
Since 1950, we’ve seen this little window of time tick upwards for the stock market, 79% of the time.
Last year? It didn’t. The S&P500 gave a rare negative return in the Santa period. And we all know how 2025 went.
Not super great, financially.
When the stock market puts coal in everyone’s stockings, it often signals a bad financial year ahead.
So analysts are watching closely for what happens this year, and whether it could signal better times in 2026.
So far, it’s looking cautiously optimistic. December overall is looking fairly strong, with interest rate cuts both in New Zealand and overseas boosting economies, and the NZX50 giving a strong end of year result.
The cost of living increases are also finally flattening out, and not a moment too soon.
And while people love to claim ‘facts over feelings’, the reality is, it’s both.
The Santa Rally is one way to test the water on how well businesses are doing.
If they’re bringing in profits, and seeing increased numbers of customers, they’ll also be willing to hire more people, and invest in new projects.
You could finally get that pay rise you’re long overdue for.
But if it’s a limp finish to the year, with more fears about tariffs, interest rates going up again, or customers keeping their wallets tightly shut, well, that tends to make everyone reach for the spreadsheets and sharpen their pencils.
Those factors can impact how business leaders feel, and unfortunately, that matters too.
If they’re feeling nervous, even if the business is doing ok, they might opt to keep their powder dry and avoid investing money into staff or new projects, in order to have reserves on hand for tough times.
2026 could go either way
The sharemarket isn’t the economy, but it is a mood board for how businesses see the year ahead. And right now, the mood could go either way.
So that Santa Rally could not only be a sign of what’s happening, it could also reinforce how those key decision-makers feel about it, and what they choose to do as they make plans for the new year.
Those of us who like to make a $5 weekly investment into shares, or make sure our KiwiSaver is working hard, don’t really have to worry about trying to ride the Santa Rally into riches.
Buying and selling stocks in the hopes of a quick buck tends to leave you with indigestion and regret, rather than tidy year-end gains. Let’s leave the greedy impulses for when the Christmas ham comes out.
But it’s still a useful indicator of what’s coming next, so that we can prepare our long-term financial plans.
Nobody’s crystal ball works perfectly, but we can still peer into the mist to get a glimpse of whether our job might stay stable through the next round of budget reviews, and whether our KiwiSaver balance will look nice and chunky… or like it’s taken on a New Year diet.
Santa doesn’t decide any of that. But he can give us a hint.
The real value of watching for this end-of-year rally isn’t necessarily as an investing strategy, but as a way of reading the room.
A strong finish to the year is a sign that the worst of 2025’s turbulence is behind us, that rate cuts are finally sticking, and that businesses might start loosening their belts again. It could be a sign that 2026 is bringing us more stability than we’ve had in a while.
A weak December says confidence is still shaky, and 2026 may need a few more plot twists before we find our footing. It’s a sign that the recovery everyone wants may be slower, more drawn-out, and more dependent on central bank bravery than we’d like.
If Santa wants to bring anything this year, a touch of confidence would do nicely.
The information in this column is general in nature and should not be read as personal financial advice.
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