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The last week was the worst for the U.S. stock market since mid-November with the Dow Jones logging its third straight week of decline. The S&P 500 dropped for the second consecutive week and the Nasdaq Composite Index snapped a four-week winning streak. The Dow Jones fell 2.3% last week, while the S&P 500 and Nasdaq declined 2% and 1.8% respectively.
The Fed took a toll on the stock market after it scaled back expectations for a rate cut. The Fed envisions only two rate cuts in 2025, in contrast to four projected in September, given a solid labor market and sticky inflation.
However, investors are bracing for a Santa Claus rally as Christmas is around the corner. A Santa Claus rally refers to the increase in stock prices in the final week of the calendar year (i.e., between Christmas and New Year’s Day) that extends into the first two days of the New Year.
Against such a backdrop, some hidden gems, or Secret Santa as we call them, could surprise investors with big returns this Christmas. We have chosen five stocks that have underperformed over the past week but have a Zacks Rank #1 (Strong Buy) or 2 (Buy) with a Momentum Score of B or higher. These are Upstart Holdings Inc. UPST, Industrial Logistics Properties Trust ILPT, Sezzle Inc. SEZL, Cintas Corporation CTAS and monday.com MNDY from different segments of the market. These stocks have a double-digit growth projection for 2025. You can see the complete list of today’s Zacks #1 Rank stocks here.
Is Santa on the Way?
The year-end seasonal factors such as holiday optimism, tax-related affairs, investment of Christmas bonuses, mutual fund manager window dressing, and the “January effect” will drive stocks higher.
The U.S. economy has been expanding on rising consumer confidence and higher spending power. Economic output increased to the highest level in nearly three years this December. S&P Global's flash U.S. composite PMI, which captures activity in both the services and manufacturing sectors, came in at 56.6 in December, up from 54.9 in August.
Retail sales rose faster than expected in November, reflecting continued resilience in consumer spending and strong economic momentum. U.S. consumer sentiment increased for the fifth month in December. The sentiment index, according to the University of Michigan, increased to 74 in December from 71.8 last month. The data points indicate that Santa is on the way.
Further, Trump’s pro-growth and pro-deregulation policies are expected to propel economic growth. Though the Fed is cautious about future rate cuts, it has slashed interest rates for the third time in the past three months, bringing down the benchmark rate to 4.25-4.50%. Lower interest rates generally lead to reduced borrowing costs that help businesses expand their operations more easily and increase profitability.