Analysts warn that a weak start to this year's "Christmas rally" combined with other factors could mean a deeper drop in the stock market in January next year.

At the end of each year, investors look forward to the "Santa Claus rally," a period that includes the last five trading days of December and the New Year's Day rally. The first two trading days of the year. Since 1950, the S&P 500 has gained an average of 1.3% over that time and has risen nearly 80% of the time, according to Dow Jones Market Data.

However, in 2024, investors may not see this market come to fruition for the second consecutive year. Dow Jones Market Data shows that as of Monday's close, the S&P 500 had fallen 1.1% since Christmas Eve (when the "Christmas Rally" began).

This period of the year could be the worst for the S&P 500 since late 2015 and early 2016.

Historically, the S&P 500 has averaged 1.5% during this period for two consecutive years. A decline is very rare and would be the first since late 2014 to early 2015 and late 2015 to early 2016. Prior to these two periods, this had only happened once since 1950, according to Dow Jones Market Data.

A weak start to this year's "Christmas Rally" and other factors have prompted some analysts to warn that U.S. stocks may continue to fall in January next year.

It's not just the S&P 500 that's showing signs of weakness, the tech-heavy Nasdaq Composite Index is in even worse shape. The Nasdaq could miss out on a "Christmas rally" for a fourth straight year, which would be the longest such run on record for the index.

It is true that the gains of the S&P 500 Index and the Nasdaq Index this year are still considerable, and even the Dow Jones Industrial Average has increased by 13%.

However, there have been relatively few periods of turmoil in the stock market this year, raising concerns that the latest wave of selling pressure could be a prelude to greater turmoil.. Since early December, stocks across market caps and styles have underperformed, with the exception of a handful of dominant mega-cap stocks.

As a result, the breadth of the stock market has deteriorated sharply. Earlier in December, declining stocks outnumbered advancing stocks in the S&P 500 for 14 consecutive trading days, the longest stretch since at least late 1999, Dow Jones Market Data showed.

However, gains in a handful of large-cap technology stocks such as Broadcom (AVGO) and Tesla (TSLA) are still very strong. They are also the S&P 500 Index and Nasdaq Composite Index. There is no main reason for a larger decline. As of Monday's close, the Nasdaq had even recovered all of its losses this month and had accumulated slight gains.

But in the past few trading days, the trend of these stocks has also begun to reverse.

Tom Essaye, founder and president of Sevens Report Research, pointed out that the S&P 500 index has clearly rebounded from the sharp decline at the Federal Reserve interest rate meeting. has stalled, which does not bode well for the stock market's near-term prospects.

Meanwhile, BTIG technical strategist Jonathan Krinsky noted last week that momentum trades pushing stocks higher in 2024 have recently emerged There are signs of a reversal, which could spell trouble for stocks in the coming weeks.

Klinsky said that as of Friday (December 27), only 58% of stocks in the S&P 500 were above their 200 The moving average is the lowest level throughout the year, and more than 60% of the constituent stocks have been above the 200-day moving average for 265 consecutive trading days (the longest since the end of 2021).

Meanwhile, the uptrend in high-beta momentum stocks—the most volatile stocks—has been broken, and the Moving Average Convergence and Divergence ( MACD), a commonly used indicator, signaled a sell-off in the S&P 500 over the weekend for the first time since September last year.

Individually, neither of these indicators is important, but when viewed together, they may indicate that investors will continue to withdraw funds.

December will be the second month for the S&P 500 Index this year after April.After a second down month, aside from a brief panic in August that sent the VIX panic index soaring to a four-year high, stocks have been remarkably stable this year.

Klinsky said: "This round of rise failed to break through the previous support trend line. This is not a good sign, although the 'Christmas rally' is still With four trading days left, we are still worried that the stock market will fall more sharply in January next year, and investors may also have such worries after last Friday’s sell-off.”

Klinsky said on Monday that the continued weakness in the stock market on Monday confirmed the point he made last weekend. According to his speculation, part of the selling pressure may come from investors' expectations that they will take profits in January next year.

Many Wall Street strategists blame rising U.S. Treasury yields for the stock market's lackluster performance in December. As stocks fell on Friday, the 10-year U.S. Treasury yield hit its highest level in more than seven months.

But stocks continued to weaken on Monday amid falling yields. The S&P 500 closed down 1.1% on Monday at 5,907, but was still above its lows earlier this month.

However, the fact that the S&P 500 Index has yet to regain 6,000 points keeps technical strategists such as Klinsky on guard. Krinsky noted that previous support levels appear to be turning into resistance levels.

If this is what happens next, it may take some time for the S&P 500 to return to its all-time high after setting 57 closing records in 2024.

At Monday's close, the Nasdaq and the Dow also fell, although the declines in both were narrower than during the session. The Nasdaq closed down 1.2%, and the Dow fell about 420 points, or 1%, to 42,574 points.