To The Moon

$S&P 500(.SPX)$

For decades, November has held a near-mythical status in U.S. equity markets. Historically the strongest month of the year for the S&P 500, November often represents the kickoff to a multi-month year-end surge, fueled by stronger seasonality, improved liquidity, tax-planning flows, and portfolio repositioning. But 2025 broke that pattern. Instead of delivering its usual gains, November turned negative—pressuring sentiment and reminding investors that even the market’s most reliable seasonal tendencies can falter when macro uncertainty rises.

Yet interestingly, history also shows that a negative November does not necessarily derail the classic Santa Rally. In fact, when the S&P 500 is already up more than 10% from January through October—a sign of strong underlying market structure—a negative November has never prevented a positive December. Not once in the historical data set. The average December return in such years is about 4%, while the average maximum drawdown is extremely mild at 1.7%, and the average maximum loss within the month is only 0.7%.

This raises the question: Was November’s weakness a temporary detour on the path to a year-end rally? Can historical patterns reassert themselves? And how should investors position themselves now, with the Nasdaq down around 2% and many growth stocks struggling?

This article dives into the historical data behind negative Novembers, the macro setup heading into December, how positioning and sentiment are shifting, and whether a classic Santa Rally is plausible in 2025. More importantly, we contextualize the year-to-date performance environment for everyday investors: Are you ahead of your annual goals, or did November’s dip wipe out too much progress? And what can you realistically expect in the last trading month of the year?

Historic Seasonality: When a Negative November Doesn’t Break the Pattern

A Negative November Is Rare—But Not a Death Sentence

Historically, November is the best-performing month for the S&P 500, averaging around 1.7%–2.0% returns over long periods. This year, it failed to deliver. But context matters: The S&P 500 had already logged double-digit gains from January through October, creating an extremely favorable backdrop.

Historical analysis shows that:

• When Jan–Oct returns exceed +10%, and

• November turns negative,

• December has never been negative in the data set measured.

This is a powerful signal. The seasonal pattern reflects institutional behavior: hedge funds, mutual funds, pension funds, sovereign wealth funds, and systematic strategies often rebalance into year-end, adding equity exposure after consolidations.

Why Does December Perform So Consistently Well?

Several structural reasons underpin the phenomenon:

1. Tax-loss harvesting in November creates forced selling Bad stocks get sold aggressively, artificially depressing November returns and creating potential rebounds later.

2. Portfolio window-dressing in December Fund managers adjust holdings to showcase winners ahead of annual reporting cycles.

3. Liquidity flows improve into year-end Seasonal bonuses, dividend payouts, and corporate buybacks increase.

4. Holiday-driven investor psychology The Santa Rally is partly self-fulfilling: investor optimism reinforces risk-on behavior.

5. Volatility typically compresses Lower volatility can support higher equity valuations.

This year’s disappointment in November may simply be the setup for a stronger December.

What Exactly Went Wrong in November?

A Shift in Rate-Cut Expectations

November turned negative largely because expectations for mid-2026 rate cuts were unwound. Inflation data surprised slightly to the upside early in the month, prompting hawkish commentary from several Federal Reserve officials. The bond market priced in fewer cuts, yields rose, and equities—especially Nasdaq names—felt the pressure.

The Nasdaq’s roughly 2% decline reflected profit-taking in megacap tech and continued selling in weaker sectors like consumer discretionary and small caps.

Earnings Disappointments Added Pressure

Several bellwether earnings reports in November missed expectations or delivered cautious guidance. This included:

• Certain AI-adjacent companies that inflated expectations earlier in the year

• Consumer stocks showing margin pressure

• Retailers struggling with subdued demand

• Cyclical sectors preparing for a softer Q1 outlook

The market entered November overextended, so any negative surprise amplified downside volatility.

Geopolitical and Macro Noise Intensified

Events in Europe, energy markets, and currency volatility added to uncertainty. The dollar’s strength weighed on multinational earnings and emerging markets, contributing to global risk aversion.

All of this combined to deliver one of the worst November performances in years—breaking a historically reliable trend.

Does a Negative November Increase the Chances of a Santa Rally?

Statistically, Yes

The data is surprisingly uniform:

• When Jan–Oct is up more than 10%,

• December has historically returned a median of +4%,

• Even after a negative November.

It’s important to note that this is not mere coincidence; it is structurally linked to how institutional investors behave in Q4—and how risk-models for large funds allocate capital.

This year’s setup closely resembles past years where:

• Momentum was strong into October

• November saw consolidation

• December ended the year on a solid note

The Significance of the 0.7% Average Maximum Loss

The most interesting statistic is the average intramonth maximum loss of just 0.7% in December during these conditions. This is unusually low volatility, suggesting that:

• Market participants are reluctant to sell into year-end

• Risk appetite improves

• Corrections are shallow

• Buyers step in quickly

If this pattern holds, December’s declines may be brief and minimal.

Macro Conditions Heading Into December 2025

Federal Reserve Stance: Softening but Not Easing Yet

The Fed is not yet cutting rates, but it is no longer aggressively tightening. This “steady but cautious” stance often supports equity valuations because:

• Companies can plan capital spending with more certainty

• Borrowing costs are no longer rising

• Inflation is trending toward target

• Investors can focus on earnings instead of macro risk

The November dip likely reflected a temporary recalibration rather than a fundamental shift.

Liquidity Conditions Are Improving

December tends to benefit from:

• Higher corporate buyback activity

• Institutional capital allocations

• Hedge funds covering shorts

• Retail flows around the holidays

This year is no exception. Buyback authorizations among S&P 500 companies are near historical highs.

Consumer Spending Remains Mixed but Stable

Despite higher borrowing costs, consumer spending remained resilient in key categories. Retail sales, though uneven, have not collapsed. And while discretionary sectors like apparel and restaurants saw pockets of weakness, technology, health care, and industrials remain strong.

This provides a buffer against downside risks.

How Is the Average Investor Ending November?

2025 Has Been a Strong Year for Most Portfolios

Even with November’s dip:

• The S&P 500 remains up double-digits YTD

• The Nasdaq is still substantially higher than a year ago

• Large-cap tech continues to outperform

• Many investors are outperforming their early-year expectations

If your portfolio is still green for the year, you’re aligned with the broader trend.

November Hurt Certain Segments More Than Others

Investors in these sectors likely saw significant drawdowns:

• AI-adjacent speculative stocks

• Consumer discretionary

• Retail

• Biotech

• Small caps

• Unprofitable tech

Meanwhile, investors overweight in:

• Megacap tech

• Industrials

• Utilities

• Energy

• Health care

… likely saw more resilience.

Did the Nasdaq’s 2% Decline Hurt You?

For growth-heavy, tech-dominant portfolios, a 2% Nasdaq dip can feel steeper—especially when high-beta names fall 5–15%. But the overall decline remains manageable compared to the gains accumulated earlier in 2025.

Sentiment, Positioning, and Technical Setup for December

Sentiment Is Bearish Enough to Be Bullish

Several sentiment indicators turned sharply negative in November:

• AAII bullish sentiment fell

• Put-call ratios spiked

• Hedge funds reduced risk

• Retail investors pulled back

Contrary to intuition, bearish sentiment in late November often precedes strong December rallies.

Positioning Is Light—Creating Room for Upside

Funds that cut exposure in November may add it back before year-end to avoid underperforming benchmarks. When markets are under-positioned heading into December, the probability of strong performance rises.

Technical Setup Shows Consolidation, Not Breakdown

The S&P 500’s November pullback did not break long-term support. Instead, markets consolidated at rising moving averages—often the precursor to a re-acceleration.

Will Santa Rally Arrive This Year?

The Case for a Santa Rally

Based on historical precedent and current market structure:

• November’s weakness sets the stage

• The Fed is not tightening

• Earnings season is behind us

• Liquidity improves

• Positioning is light

• Sentiment is pessimistic but stable

These are all ideal conditions for a Santa Rally.

The Case Against a Santa Rally

Risks remain:

• A sudden macro shock

• Hawkish Fed commentary

• Unexpected inflation reports

• Profit-taking by institutions

• A stronger dollar

• Geopolitical volatility

Any of these could disrupt seasonality.

However, none of these risks appear elevated enough to guarantee failure.

Outlook for December: What Investors Should Expect

Base Case: A Constructive Santa Rally

Expected December return: +2% to +5% Expected volatility: below average Expected drawdown: 1%–2%

Bull Case: A Strong Year-End Surge

If positioning flows accelerate:

• December returns could reach +5% to +7%

• Megacap tech could resume leadership

• Cyclical sectors may rebound

• Small caps could finally catch a bid

Bear Case: Seasonal Strength Fails

If macro shocks hit:

• December could be flat

• High-quality stocks outperform

• Small caps and speculative tech lag

• Volatility rises late in the month

This remains the least likely scenario given current data.

How Are You Doing on Your Annual Goals?

The Investor Reality Check

The final months of the year are when most investors reflect on:

• Year-to-date performance

• Allocation decisions

• Missed opportunities

• Drawdowns suffered

• Whether annual targets are met

If you're on track for your yearly target—even after November—you are in a stronger position than most investors historically during similar periods.

If You Are Behind

December offers opportunity, but caution is key. Chasing aggressive trades rarely ends well. A measured, diversified approach benefits from seasonality without being dependent on it.

If You Are Ahead

It may be prudent to:

• Trim overly concentrated positions

• Rebalance into long-term holdings

• Take selective profits

• Prepare for Q1 volatility

End-of-year discipline often sets up a strong start to the next year.

Conclusion: Will December Save the Year?

This year’s negative November surprised many investors, breaking one of the most reliable seasonal patterns in the market. But history suggests that a failed November does not doom the Santa Rally—especially when the S&P 500 is already up double digits through October.

The most compelling evidence:

• December has never been negative in this setup

• Average December return is +4%

• Average maximum loss is only 0.7%

• Market structure favors a constructive trend

• Sentiment and positioning are aligned with a year-end lift

While nothing in markets is guaranteed, the probability of a positive December remains high.

So as we head into the final month of the year, ask yourself:

• How did your portfolio handle November’s pullback?

• Are you still ahead on your annual target?

• Will you participate if a Santa Rally unfolds—or sit on the sidelines?

Whether or not Santa arrives this year, the framework remains the same: disciplined positioning, awareness of seasonality, and focus on long-term strategy. November may have disappointed, but December still holds the potential to redeem the year.