A Santa rally is a phenomenon where stock markets often rise in December as investor optimism increases towards year-end. However, it seems this December has bucked the trend, with most FTSE indexes down by around 3%.

The troubles didn’t start there though.

A brief rally in late November failed to recover losses after the October budget. Then, a perfect storm of mitigating factors stopped any further growth in its tracks. Supply chain issues, takeover bids and rising energy costs strangled any hopes of recovery.

Last week’s hawkish tone from the US Federal Reserve didn’t help matters, suggesting fewer interest rate cuts next year than expected. The ripple effect of tighter US monetary policy was a punch in the gut for global markets.

Hope on the horizon

Not everything about the dip is negative. Some of the decline can be attributed to a strengthening British pound, which weighs on UK-listed exporters by making products pricier overseas. And with UK government bond yields rising, investors are shifting focus away from equities. 

That looks bad in the short term but suggests bigger factors are at play.

As the saying goes” “It’s always darkest just before dawn.” Could this dip be an early suggestion of a 2025 rally? 

There’s a chance the slowdown could lead to a stronger recovery next year. If global demand picks up – particularly from major trading partners like the US or China – export-driven sectors in the UK might benefit.

Considering markets are forward-looking, I think the US Federal Reserve and Bank of England are being overly cautious. If recent inflation proves transitory, interest rate cuts in 2025 could be back on the table, helping to boost equities.

One stock I’m bullish on

Down 43% since 1 January, JD Sports Fashion (LSE: JD.) is the worst-performing stock on the FTSE 100 this year. It’s faced challenge after challenge in 2024, including a volatile trading environment and adjusted profit expectations.

But a recovery may be on the cards, meaning the current low price could present an excellent opportunity.

Why? For one, it’s been actively expanding its global footprint through strategic acquisitions. 

It recently made huge inroads in the US, acquiring sports business Hibbett for over $1bn. The move promises to significantly strengthen its presence in the American market. This adds to several European acquisitions made last year, including French retailer Courir. 

These acquisitions should enhance its market position and diversify its revenue streams. But they come with risks.

The purchases were costly, bringing the group’s debt close to £1bn. If they don’t perform as expected, it would be a black mark on the balance sheet. Supply chain disruption and fluctuating exchange rates are key areas of concern. A weakened set of final-year results could hurt the price further.

Yet despite the falling price, recent performance has been good. In its third-quarter trading update for the 13 weeks to 2 November 2024, gross margins increased 0.3% while delivering 5.4% organic sales growth and 10.4% organic revenue growth in Europe. It opened a further 79 new JD stores globally and expects full-year profit to be within the guidance range.

I believe the potential for a strong recovery makes it a stock well worth considering, which is why I recently bought some of the shares.