With just a few weeks of trading days left in the year, we look at what to expect from markets as we wrap up the year.

As we enter the first full trading week of December, we are now in the final stretch of 2025, with just 21 trading days left in the year after Monday. While markets are largely unpredictable, the market can be subject to seasonal biases, with December being one such period that has historically seen above average returns. 

December is typically a solid month for markets, seeing the S&P 500 (SPX) average a gain of 1.7% since 1950, with November being the only month with higher average return. Additionally, SPX has been positive in 77% of Decembers since 1950, which is the highest positive rate among any calendar month. One way to gauge what to expect in a good or bad scenario is to look at the 75th and 25th percentile returns, respectively.  The S&P 500 sees a return at least of 3.8% in 75% of Decembers, which is the fifth best “good” outcome among calendar months. Even a “bad” 25th percentile outcome for December has seen the market average a return of 0.2%, which is easily the best of any month. That effect is amplified for small cap stocks, with the Russell 2000 Index (RUT) averaging a 2.4% gain since 1979, which is the second highest of any month. Overall, the month of December has seen a high floor for returns even in bad years, with things looking even stronger when isolating the back half of the month.

The Stock Trader’s Almanac highlights the market’s strong end-of-year performance as part of the Santa Claus Rally Study, stating, “Santa Claus tends to come to Wall Street nearly every year, bringing a short, sweet, and respectable rally within the last five days of the year and the first two in January.” We will explore the Santa Claus Rally in more detail later this month, but today, our focus is on the historical performance dispersion between the first and second halves of December.

We have gathered data below for the total return of SPX and RUT over three different periods: the first half of the month, the second half of the month, and the entire month. The performance comparison for each index confirms that almost all the average net gains for large-caps and small-caps occur in the second half of the month. Noteworthy observations from the yearly performance comparison are provided below, along with the average return summary.

Historical December Performance Observations:

• The S&P 500 has shown a positive return in December 77% of the time since 1950. However, the index has been positive in the first half of the month just 60% of the time, compared to 80% in the second half.
• The Russell 2000 has been positive 74% of the time, but the small-cap index has been positive only 46% of the time in the first half of the month, compared to 84% in the latter half.
• The S&P 500 has seen the second half of the month outperform the first in 64% of instances since 1950.
• The Russell 2000 has seen the second half of the month outpace the first in 74% of instances since 1978.

As evident from the data above, the effect of outperformance in the second half of December is more pronounced for small-caps than for large-caps. This was observed in our Modified January Effect study last week, which examined the outperformance of small-caps from mid-December through mid-January each year. One possible explanation for this trend is that small stocks, often sold for tax-loss purposes, begin to rebound toward the end of December and into January as investors become more willing to accept risk in their portfolios. Notably, December has recorded the second highest average excess return between the RUT and SPX of any month since 1979.

Considering these December biases within the current market context, the S&P 500 is entering December with the potential for seasonality to add further improvement onto its consistent strength over the past three years. Small caps have also shown significant improvement over the last six months, with RUT outpacing SPX by over 5% since the end of May. However, consistency has been the issue for the Russell 2000, with sharp improvements swiftly followed by retracements lower over the last several years. Small caps remain acceptable despite look relatively weaker than large caps, but we will continue to monitor markets for significant changes in supply and demand, as December return tendencies could be especially influential for small caps as we approach 2026.