Late-December markets demand a different playbook

As markets approach the Christmas-New Year period, trading conditions enter a uniquely fragile phase defined by reduced liquidity, wider spreads, and heightened sensitivity to headlines.

- Razan Hilal

These seasonal distortions are driven by the convergence of year-end portfolio rebalancing, FX exposure adjustments, diminished institutional activity, and lower overall participation levels.The result is an environment where price discovery becomes uneven and outsized intraday moves can be triggered by otherwise routine data points or single flows. For investors, this period demands a tempered, risk-aware approach, and an understanding that traditional market behaviours often weaken as the year draws to a close.

The Santa rally

Late December has historically been associated with the “Santa Claus Rally,” during which US equity indices tend to strengthen into year-end. Yet, history is not a guarantee.

The effect varies widely depending on macro conditions, valuation pressures, and policy expectations, all of which remain fluid this year.