In a quiet Christmas Eve trading session, major U.S. stock indices closed at record highs, with the S&P 500 achieving its first Christmas Eve closing record since 2013. On December 24, U.S. markets closed early for the holiday. The S&P 500 rose 0.3% to 6,932.05, while the Dow Jones Industrial Average outperformed with a 0.6% gain, closing at 48,731.16—also a record high. The tech-heavy Nasdaq Composite edged up 0.2%. Meanwhile, the CBOE Volatility Index (VIX) dipped below 14 for the first time since December 2025, signaling subdued market volatility.
Technically, the rally holds critical significance. According to Fairlead Strategies analyst Katie Stockton, while the S&P 500 had been advancing, it hadn’t confirmed a breakout. Wednesday’s close well above the key resistance level of 6,911 marked a definitive "breakout" for technical analysts, potentially easing year-end pullback concerns.
**Technical Breakout Paves Way for Year-End Rally** Though the gains were modest, their technical implications outweighed the magnitude. Stockton noted that before this breakout, technical traders saw lingering correction risks, prompting year-end risk management. Now, with the S&P 500 firmly above 6,911, the breakout could attract trend-following and momentum traders, bolstering the "Santa Claus rally." This also alleviates fears of a late-2025 sell-off.
**Santa Rally in Motion? Wall Street Bullish on 2026** Investors are eyeing the traditional "Santa rally"—the year’s last five trading days and the first two of the new year. Earlier tariff fears have given way to FOMO (fear of missing out) as stocks repeatedly hit records.
Macro fundamentals support optimism. U.S. jobless claims dipped, highlighting seasonal fluctuations but underscoring a stable labor market with low layoffs. Traders expect two 25-basis-point Fed rate cuts in 2026, one more than policymakers’ median forecast.
Principal Asset Management’s Magdalena Ocampo noted, "As long as unemployment doesn’t spiral, resilient growth, cooling inflation, and looser policy will support risk assets."
Per CFRA, the S&P 500 has surged nearly 18% this year, on track for a third straight double-digit annual gain—a "three-peat." Wall Street’s 2026 forecasts are unusually aligned and upbeat, with year-end targets showing the tightest spread in a decade, reflecting strong consensus.
Since the November 2024 election, U.S. stocks have risen 19.8%—the smallest post-election gain since 2008 but still nearly double the historical average of 10.1% since 1952.
While tech valuation concerns persist, the "Magnificent Seven" haven’t moved in lockstep, with some lagging the market, suggesting not all tech stocks are bubbly. Improved market breadth may offer a firmer foundation for further gains.
"Wall Street strategists agree the momentum will continue," said prominent bull Ed Yardeni, who predicts the S&P 500 will reach 7,700.
**Cautious Sentiment: Investors Favor Quality and Dividends** Despite record highs, fund flows reveal caution. The Russell 2000 (small caps) and Nasdaq underperformed the Dow and S&P 500.
High-risk assets were muted: the Invesco S&P 500 High Beta ETF rose just 0.2%. Meanwhile, quality and dividend ETFs like Invesco S&P 500 Quality and SPDR S&P 500 High Dividend gained 0.5%. Analysts attribute this to thin holiday trading and pre-weekend risk aversion, showing stocks can climb even amid caution.
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