A relatively quiet session on Wall Streetbefore Christmas saw stocks hitting all-time highs, with more signs the jobs market is not quickly deteriorating supporting bets on a soft economic landing.
Investors hoping for a “Santa Claus Rally” — which typicallyencompasses the last five trading days of the year and the first two of the new one — saw the S&P 500 rising in a shortened sessionahead of the holiday. Treasury yields edged lower. The dollar barely budged.
The subdued action contrasts with theextreme turbulence driven by the tariff storm earlier in the year that put the equity benchmark on the brink of a bear market. Since then, stocks have surged, with every dip being bought at a record pace and the fear of missing out dominating sentiment.
While the impressive rally briefly stalledas exuberance over artificial intelligence was questioned in the final stretch of the year, bets the Federal Reserve will have further room to cut rates in 2026 kept fueling optimism over Corporate America’sprofits.
“Investors should position for furtheradvances in equity markets,” Ulrike Hoffmann-Burchardiat UBS Global Wealth Management said this week. “Wemaintain our attractive rating on US equities. We find compelling opportunities in tech, health care, utilities, as well as financials, which should broaden the foundation for further gains.”
As traders parsed the latest economic data,they’ve kept their call that the Fed makes twoquarter-point reductions in policy rates next year, one more than officials’ median forecast.
Applications for US unemployment benefitsfell last week, highlighting the seasonal swings in the data at this time of year. Wednesday’s figures are consistent with a labormarket seeing relatively low layoffs, a trend that has remained intact throughout the year despite heightened economic uncertainty.
“For now, we expect two rate cuts nextyear, likely in the first half, and, provided unemployment doesn’t spiral, a resilient economy, cooling inflation and easier policyshould be supportive for risk assets,” Magdalena Ocampoat Principal Asset Management said this week.
In a fifth straight day of gains, theS&P 500 topped 6,930. A closely watched volatility gauge — the VIX — hit the lowest this year. Theyield on 10-year Treasuries slid three basis points to 4.13%.
Gold steadied after a rally that took theprecious metal to an all-time high above $4,500 an ounce.
“The stock market is finally starting toeke out some gains for December after a choppy few weeks, and just in time for the market’s Santa Claus rally, which we expect to takeplace in its typical format,” said Paul Stanley atGranite Bay Wealth Management.
Meantime, breadth is becoming healthier,with an increasing number of stocks participating in the rally.
“Markets remain constructive, butselective,” said Craig Johnson at Piper Sandler. “The combination of improving breadth and easing inflation supportsthe call for a Santa Claus rally.”
Seasonal tailwinds may help, butconfirmation via breadth and participation is still required, Johnson noted.
“If the historical pattern holds, it putsthe market right around a 20% year,” said Mark Hackettat Nationwide. “But, while there’s clearly more to like than not right now, be careful aboutextrapolating another 20% run next year once momentum cools.”
The S&P 500 has risen nearly 18% so farthis year, heading toward a third consecutive double-digit gain, also known as a “three-peat,” according toSam Stovall at CFRA. A “four-peat” is highly unlikely, he said.
Since 1945, Stovall noted the S&P 500recorded only one four-peat (1949-1952) and one five-peat (1995-1999). Of course, past performance is never a guarantee of future results, he warned.
Sell-side strategists across major firmshave issued year-end targets for the S&P 500 that are clustered the tightest in almost a decade. With the highest forecast from Oppenheimer &
Co. at 8,100 and the lowest from Stifel Nicolaus & Co. at 7,000, the gap in their annual outlook is just 16%.
“The consensus among Wall Street investmentstrategists is that the magic will last,” said EdYardeni of eponymous firm Yardeni Research, who has a forecast of 7,700 for the US equity gauge.
“However, the first half of 2026 could seea correction if bond yields rise significantly, given mounting concerns that monetary and fiscal policies might be overly stimulative,” Yardeni said.
Meantime, questions about a shift inleadership have surfaced amid lofty tech valuations and concerns about ambitious AI spending plans.
“Investors often view the Magnificent Sevenstocks as a single, unified force, assuming they move in lockstep and that the broader market’s success depends on their leadership,” said Brian Levitt at Invesco. “Thisperception is understandable given their outsized weight in major indexes, but it oversimplifies reality.”
In fact, Levitt notes that the narrativedoesn’t match the numbers. Most of these megacaps areactually rising less than the S&P 500 this year.
“Valuations in tech are high, but someMagnificent Seven names have actually underperformed the S&P 500 this year, which suggests that there is still more room to run and that not all tech
stocks are trading at runaway or complacent valuations,” Granite Bay’s Stanley said.
“Seasonals remain favorable, and we see atleast 5% upside into year-end,” said Thomas Lee atFundstrat Global Advisors. “And this is arguably thebase case, given that in 2025, the Fed only started cutting in September.”
Lee noted that this mirrors September 1998and September 2024. In both instances, S&P 500 gained 13% in the fourth quarter.
The Fed’s latestcut on Dec. 10 faced three dissents, the most since 2019. Officials are divided
about the appropriate path for rates, with some policymakers more concerned
about a cooling labor market and others saying the central bank should
prioritize reining in above-target inflation.
President Donald Trump last week said hehad narrowed his list for Fed chair nominees to “threeor four” candidates and expected to have a decisionpretty quickly, with an announcement “over the nextcouple of weeks.”
“The Federal Reserve will likely refrainfrom any more rate cuts until there is a new Fed Chair mid-year,” said Clark Bellin at Bellwether Wealth. “Webelieve stocks can move higher during this time even without additional rate cuts from here.”
Corporate Highlights:
Nvidia Corp. agreed to a licensing dealwith artificial intelligence startup Groq, furthering its investments in companies connected to the AI boom. Intel Corp. fell after a report said that
Nvidia Corp. halted a test to use Intel’s productionprocess to make advanced chips. Nike Inc. rose after a filing showed that Apple Inc.’s Tim Cook purchased $2.95 million worth of shareson Dec. 22. Goldman Sachs Group Inc. warned investors in some of its alternative investment funds that their data may have been exposed in a breach at one of the bank’s law firms. Tricolor Holdingsfounder Daniel Chu collected nearly $30 million in compensation in the year
leading up to the subprime auto lender’s collapse amidalleged fraud, according to a lawsuit filed by the trustee overseeing the company’s liquidation. Louis Dreyfus Co., one of theworld’s largest agricultural traders, said ChiefFinancial Officer Patrick Treuer died “unexpectedlyovernight.” He was 52 years old. Sanofi agreed to buyDynavax Technologies Corp. for about $2.2 billion, as it seeks to expand a vaccines business currently anchored by its flu shot franchise. BP Plc agreed to sell a majority stake in its Castrol lubricants division to US investment firm Stonepeak Partners, marking a key milestone as the oil and gas major seeks to reduce debt and reset its business. KKR & Co. and PAG agreed to buy the real estate holdings of beermaker Sapporo Holdings Ltd. in one of Japan’s largest property deals this year. Honda Motor Co. will buy out LGEnergy Solution Ltd.’s facilities and other assets fromtheir joint battery plant in Ohio for about 4.2 trillion won ($2.9 billion) as America’s pullback in electric vehicles continues toripple across the industry’s supply chain. TokyoElectric Power Co. plans to restart the world’s largestnuclear power plant next month, marking the Japanese utility’s return to atomic energy nearly 15 years after the Fukushimadisaster. China’s Jiangxi Copper Co. has agreed to buycopper miner SolGold Plc in a deal that values the company at little over $1 billion. Chinese home appliance maker Haier Smart Home Co. agreed to sell a 49% stake in its India unit to Bharti Enterprises Ltd. and Warburg Pincus. What Bloomberg Strategists say…
“Given tech stocks have been increasinglyand overwhelmingly the driver of US equity gains, a strong finish in December for the sector offers equity investors a good omen for the beginning of 2026 — especially if they help propel the S&P 500 to a record highbefore the year is out.”
—Kristine Aquino, Macro Strategist, MarketsLive.
Some of the main moves in markets:
The S&P 500 rose 0.3% The Nasdaq 100rose 0.3% The Dow Jones Industrial Average rose 0.6% The MSCI World Index rose 0.2% Bloomberg Magnificent 7 Total Return Index rose 0.1% The Russell 2000 Index rose 0.3% Currencies
The Bloomberg Dollar Spot Index fell 0.1%The euro fell 0.1% to $1.1778 The British pound fell 0.1% to $1.3500 The Japanese yen rose 0.2% to 155.96 per dollar Cryptocurrencies
Bitcoin fell 0.1% to $87,565.85 Ether fell1% to $2,942.88 Bonds
The yield on 10-year Treasuries declinedthree basis points to 4.13% Germany’s 10-year yield waslittle changed at 2.86% Britain’s 10-year yield waslittle changed at 4.51% The yield on 2-year Treasuries declined three basis points to 3.50% The yield on 30-year Treasuries declined three basis points to 4.79% Commodities
West Texas Intermediate crude was littlechanged Spot gold fell 0.1% to $4,479.42 an ounce ©2025 Bloomberg L.P.