Stocks finished trading on Friday — the second session of the so-called “Santa Claus rally” — down just slightly on the day after a run of five straight positive sessions, with the S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) hovering right near record levels set on Christmas Eve.
For the holiday-shortened week, the benchmark S&P 500 gained roughly 2.3%, while the blue-chip Dow and tech-heavy Nasdaq Composite (^IXIC) picked up about 1.6% and 2.5%, respectively.
Wall Street enters another relatively sleepy holiday week. Employment figures from labor market data provider ADP and minutes from the Federal Open Market Committee’s December meeting, both released on Wednesday, will take center stage as Wall Street looks to enter 2026 on a high note.
2025 has been a year of fresh highs throughout the market.
After a sharp downturn in the wake of President Trump’s springtime tariff policy rollout, all three major stock indexes have rallied back to notch multiple records. Gold (GC=F) and silver (SI=F) have headlined a monster rally for precious metals, both cresting their historical highs as investors turned to safety investments, while copper (HG=F) hit its own high-water mark on the back of supply chain disruptions and tariff policy uncertainty.
2025 also saw Nvidia (NVDA) become the first company to cross a market capitalization of $5 trillion as the biggest players in technology ballooned their spending to keep up in what has become an AI arms race.
Now, with stocks hitting fresh records near the tail end of last week, the market is looking primed for a positive “Santa Claus rally” — typically the last five trading sessions of December and first two of January.
“Momentum heading into year-end suggests a favorable setup for a positive Santa Claus Rally — a historically bullish signal for January and the year ahead,” Adam Turnquist, chief technical strategist for LPL Financial, said in emailed commentary.
Wall Street strategists are predicting that the indexes will keep the party going in 2026.
The S&P 500 closed Friday’s trading session at 6,929.94. Strategists at JPMorgan Chase and HSBC see the index reaching 7,500 by year-end in 2026. Morgan Stanley and Deutsche Bank are even more bullish, setting their 2026 targets at 7,800 and 8,000, respectively. The latter number would represent a more than 15% increase from current levels.
“Despite AI bubble and valuation concerns, we see current elevated multiples correctly anticipating above-trend earnings growth, an AI capex boom, rising shareholder payouts, and easier fiscal policy,” said JPMorgan lead equity strategist Dubravko Lakos-Bujas.
But investors are also stepping into 2026 with an economy on somewhat shaky footing.
Even as GDP growth has jumped and inflation has cooled, the US economy is growing increasingly fragmented, or “K-shaped.” Higher-income households have been drivers of spending and wealth growth, while lower-income households have struggled.
Worries about overspending by Big Tech companies and potentially unsustainably lofty valuations in the sector have remained persistent. Balance sheet stressors in the private credit and corporate debt spheres have continued to accumulate.
Investors also have to grapple with a series of geopolitical unknowns: the war in Ukrain, tensions around the energy market in Venezuela and predictions for a global supply glut in the oil market, a more isolationist stance from US political leaders, and the booming demand for electricity to power the AI revolution.
As of Friday, traders were pricing in about 80% odds that the Federal Reserve will hold rates steady at its January meeting, signaling a belief that Chair Jerome Powell’s wait-and-see approach will continue to drive rate decisions.
While strategists at State Street Global Advisors are approaching 2026 with a largely bullish outlook on the US economy, the firm wrote in a note to clients, given that factors such as elevated valuations and market capitalizations remain a concern, they are “underlining the importance of being selective in exposures.”
That hasn’t kept strategists from looking forward with hope for a strong 2026. Going back 75 years to 1950, the Santa rally has never seen negative returns for more than two years in a row. (2023 and 2024 were both down years in the period.) If this week’s Santa rally notches a positive return, LPL Financial’s Turnquist wrote, it will signal a likely strong start to next year — but history is no sure bet.
The key will be whether the market can maintain its delicate balance.
“The economy is demonstrating a Goldilocks scenario with above-potential U.S. economic growth, and declining but elevated inflation and a less robust labor market,” Eric Teal, chief investment officer of Comerica Wealth Management, wrote in a client note.
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