9 Undervalued S&P 500 Stocks to Take Advantage of a Potential Santa Claus Rally

As December draws to a close, investors once again look to the markets for signs of the Santa Claus Rally. This seasonal pattern refers to the final five trading days of the year and the first two sessions of the New Year, a period that has historically delivered strong returns.

The Stock Trader’s Almanac first brought widespread attention to this trend. Data tracked since 1950 shows that these seven trading days consistently produce above-average gains. Over this stretch, the has recorded an average rise of about 1.3% and finished higher nearly 80% of the time.

The contrast becomes clearer when viewed against long-term performance. The S&P 500 delivers roughly 10% on an annualized basis, which translates to an average gain of around 0.2 percent over a typical seven-day period.

In simple terms, both the hit rate and the average gains during the Christmas rally far exceed what markets typically deliver in an average week.

Why do stocks often rise during the Christmas rally?

Despite decades of analysis, markets still lack a single, agreed explanation for the Christmas rally. Several factors likely work together.

Investor sentiment plays a role. The holiday season often brings a more optimistic mood, which can tilt behavior toward buying rather than selling.

Year-end positioning also matters. Investors and fund managers rebalance portfolios, deploy bonuses, and tidy up holdings ahead of the new financial year, creating incremental demand for equities.

Market structure adds another layer. Trading volumes typically fall in late December and early January as many professionals take time off. With fewer participants and thinner liquidity, even modest buying pressure can push share prices higher.

Finding the strongest S&P 500 stocks for a potential Christmas rally

If historical timing plays out, the Christmas rally could soon take shape in the S&P 500. With the index down nearly 2% so far this month at about 1.86%, opportunistic buying and a catch-up effect could drive stronger-than-average gains into year-end.

Against this backdrop, we used the Investing.com screener to spot potential opportunities within the S&P 500. The focus was on stocks trading at attractive valuations relative to their financial strength, while also carrying supportive views from analysts.

Here is how the screening process was structured, based on the selected parameters:

This screen narrowed to nine potential opportunities within the S&P 500.

Taken together, these S&P 500 stocks appear undervalued by 27.6% to 67.9% based on InvestingPro’s Fair Value estimates. Analysts also see meaningful upside, ranging from 26.3% to 59.6%.

That said, value screens represent only one way to spot potential Christmas rally candidates. The Investing.com screener also includes several pre-built searches under the Growth category, designed to surface US stocks with strong upside potential across different investment strategies.

Please note that some searches are reserved for InvestingPro subscribers with a PRO+ plan.

Please keep in mind that some of these pre-configured searches are available only to InvestingPro and Pro+ subscribers.

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Disclaimer: This article is written for informational purposes only. It is not intended to encourage the purchase of assets in any way, nor does it constitute a solicitation, offer, recommendation or suggestion to invest. I would like to remind you that all assets are evaluated from multiple perspectives and are highly risky, so any investment decision and the associated risk belongs to the investor. We also do not provide any investment advisory services.