Investors anticipating traditional year-end cheer in the U.S. stock market are confronting volatility that could persist through the end of the year. Although stock indexes are on track for solid performance in 2025, the S&P 500 has seen a slight decline in December, defying historical trends of typically strong performance during this month.
Recent swings in U.S. equities have been driven by two key themes: heightened scrutiny of corporate spending on artificial intelligence and shifting expectations regarding Federal Reserve interest rate cuts in 2026. Notably, concerns over a data-center project by Oracle put pressure on tech and other AI-related stocks, while inflation data provided a positive boost to the market.
As the year concludes, investors may seek to secure profits after a successful run, potentially leading to selling pressure. However, recent economic data suggests the potential for a 'Santa Claus rally,' a phenomenon where the S&P 500 gains an average of 1.3% in the year's last days and early January. This year, that period runs from December 27 to January 5.
