At Goldman and Citadel Securities, the Santa Rally Has Believers

(Bloomberg) — Traders who spent most of December wondering if the typical year-end “Santa Claus rally” was ever going to kick in may finally be getting what they’ve been waiting for.

The S&P 500 Index advanced 0.8% on Thursday, halting a four-day losing streak that has left the benchmark gauge down for the month. If history is any guide, stocks will keep pushing higher: Since 1928, the S&P 500 has risen 75% of the time in the last two weeks of December, rising 1.3% on average, data compiled by Citadel Securities show.

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While longer-term worries about the artificial-intelligence trade linger and valuations remain stretched, optimism over a strong economy and corporate profits is keeping investor sentiment upbeat. Traders are snapping up bullish options on chipmakers and large-cap technology shares, according to Susquehanna International Group, while the retail crowd remains avid buyers of US stocks.

“Barring any major shocks, it will be hard to fight the overwhelmingly positive seasonal period we are entering and the cleaner positioning set-up,” Goldman Sachs Group Inc.’s trading desk team including Gail Hafif wrote in a note to clients. “While we don’t necessarily see a dramatic rally, we do think there is room to go up from here into year end.”

US stocks bounced back Thursday after a cooler-than-expected — albeit controversial —  inflation report bolstered prospects for more interest-rate cuts next year. Technology shares led the advance, with the Bloomberg Magnificent Seven Index rising 2% and the Nasdaq 100 Index adding 1.5% after wobbling in the past five days.

That’s good news for derivatives traders who spent the last few days buying options wagering on a further rally in technology shares. They scooped up call spreads tied to Nvidia Corp., Micron Technology Inc. and the Technology Select Sector SPDR Fund (XLK), while selling puts on megacap names including Alphabet Inc., Nvidia and Broadcom Inc., according to data compiled by Susquehanna.

“This is a classic expression of confidence that declines will be shallow and temporary,” said Chris Murphy, Susquehanna’s co-head of derivatives strategy. “Investors were using the tech drawdown to increase exposure to AI, semiconductors and long-duration tech, not flee from them.”

The broader backdrop for US equities remains constructive as well. Investors have put about $100 billion into US stocks in the past nine weeks, extending a steady trend of inflows seen throughout 2025, according to Goldman Sachs. A gauge of investor sentiment tracked by the firm is sitting at the most bullish level since April.

Retail investors, the stock market’s biggest cheerleaders this year, are showing few signs of losing interest. Individual traders have been net buyers of call options on US stocks for 32 of the past 33 weeks, the longest stretch in Citadel Securities’ data.

“Following a year of strong portfolio returns and record household wealth, retail participants enter 2026 with both conviction and balance-sheet capacity to increase market participation,” Scott Rubner, head of equity and equity-derivatives strategy at Citadel Securities, wrote in a note to clients Thursday.

Institutional investors have become more upbeat on the stock market as well, scooping up calls across the stock market and piling into sectors outside Big Tech in the past few weeks, Rubner added. Economically sensitive real estate and industrials stocks showed the strongest buy signal for a second consecutive week, he said.

Subsiding volatility ahead of a seasonally quiet part of the year is adding another tailwind. The S&P 500’s 10-day realized volatility has dropped to one of its lowest levels of the year, a dynamic that could prompt volatility-targeting and trend-following funds to increase equity exposure.

“We still think there is room for volatility to compress further,” Goldman’s trading desk wrote. “Lower levels of implied volatility mean more fuel for systematic re-leveraging.”

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