As the year-end approaches, concerns are mounting over the potential disruption of the traditional “Santa Claus rally” in the stock market. Lawrence G. McMillan, a seasoned trader and author, has raised alarms about what he calls the ‘Grinch pinch,’ which could impact this seasonal market phenomenon.

What Happened: McMillan analyzed the current state of the stock market in a recent op-ed published in MarketWatch on Friday, focusing on the S&P 500 Index. The index is attempting to rebound from a sharp decline following the U.S. Federal Reserve’s December meeting. While the VIX has decreased and market indicators appear positive, McMillan warns that the market remains within a broad trading range between 5,870 and 6,100, with notable resistance and support levels.

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Despite the market entering a bullish seasonal period known as the “Santa Claus rally,” McMillan advises investors to remain vigilant.

The “Grinch pinch” refers to potential negative factors that could impede this rally. Although market breadth is improving, new lows on the NYSE still surpass new highs. McMillan suggests maintaining a core bullish position as long as the SPX stays above 5,870.

“In other words, the outlook for stocks can be quite negative if the market does not rally during this period,” he said.

Why It Matters: The “Santa Claus rally” is a well-documented phenomenon where the stock market tends to deliver gains during the final trading days of December. Historically, the S&P 500 has gained in 64 out of the last 96 years during the Dec. 24–Dec. 31 window, averaging a 0.85% return. Notably, in 2018, the S&P 500 surged 6.6%, marking its strongest year-end rally on record.

Despite recent declines in U.S. stock futures post-Christmas, analysts remain optimistic about a potential Santa Rally into the New Year. The S&P 500 is on track for a robust 20% plus return for the second consecutive year in 2024. With a high probability of no change in interest rates for the upcoming Jan. 31, 2025 decision, the market outlook remains cautiously optimistic.

Price Action: As per Benzinga Pro, as of Friday pre-market hours, the SPDR S&P 500 ETF Trust ( SPY ) which tracks the S&P 500 has increased by 1.68% in the past five days. During the same time frame, the Invesco QQQ Trust, Series 1 ( QQQ ) which tracks the Nasdaq-100 Index has increased by 1.65%.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

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