Major Stock Indexes Higher For 4th Straight Session. Can This Strength Continue Into Boxing Day and 2026?

Major stock indexes ended higher for a fourth straight session on Tuesday, $S&P 500(.SPX)$ closes at record high after delayed third-quarter GDP figures came in better than expected.

In this article, we would like to look at how we can read the market environment through Tuesday’s session, the implications for Boxing Day (December 26, 2025) and into 2026, and the sectors that analysts expect to drive any further rally:

Current Market Backdrop

Key points from market data and commentary:

• Major U.S. indexes hit fresh highs as the S&P 500 closed at a record level after third-quarter GDP grew at a stronger-than-expected 4.3% annualized pace—surpassing consensus forecasts and lifting sentiment.

• Holiday-thin trading conditions (low volume) can exaggerate moves both up and down, making near-term patterns less reliable.

• The Federal Reserve’s end-of-year policy message was nuanced (a modest rate cut but with concerns about inflation and yields), which is feeding mixed signals into equity futures.

• Confidence measures such as the VIX (“fear gauge”) are near multi-year lows, but some strategists warn this complacency could mask risks into 2026.

• Goldman Sachs and other institutions still expect earnings growth to broaden beyond mega-cap tech names in 2026.

Can strength continue on Boxing Day and into early 2026?

Short-term (Boxing Day / Year End)

• Historically, there is a slight tendency for markets to rise around year end and into early January (the classic Santa Claus rally pattern), though recent performance has been uneven.

• Given the strong GDP surprise, low volatility, and year-end positioning, a modest continuation of positive returns on Thursday, December 26, is within historical norms—but thin holiday liquidity can distort moves, raising the risk of reversal.

Into 2026

• Most mainstream forecasts (e.g., Morgan Stanley, Goldman Sachs, Oppenheimer, Yahoo Finance consensus) foresee ongoing modest gains for U.S. equities in 2026, supported by earnings growth and accommodative monetary policy.

• Any extension of the rally is not guaranteed, especially if valuations are high, the Fed remains cautious about rate cuts, or macro risks (labor weakness, credit stress) materialize.

• Analysts emphasize that earnings—and not just macro surprises—will be the core driver of market direction into mid-2026.

Sectors Likely to Lead or Contribute in 2026

1. Technology and Communication Services

• Still expected to be a key contributor in 2026, particularly AI-related names and hyperscalers, though growth rates may moderate versus 2025 levels.

• Goldmans projects “Magnificent Seven” stocks will continue to lead earnings contributions in 2026, even if tech’s overall market breadth narrows.

$Technology Select Sector SPDR Fund(XLK)$ $Communication Services Select Sector SPDR Fund(XLC)$

2. Industrials (incl. Aerospace & Defense)

• Industrial stocks—especially defense, aerospace, machinery, and capital goods—are cited as having attractive prospects thanks to increased government spending and economic normalization themes.

• Analysts see these sectors benefiting from infrastructure spend, recurring defense budgets, and broader cyclical improvement.

Overall Sector Gain: Up approximately 19.2% year-to-date (Dec 22, 2025).

Outperformance: Outpaced the broader S&P 500 index, which gained around 17%.

Aerospace & Defense Boom: A sub-index for this group surged 46%, boosted by increased global defense spending.

Leading Stocks: Companies like GE Vernova (up over 100%) and GE Aerospace (up ~55%) led the charge. 

$Industrial Select Sector SPDR Fund(XLI)$

3. Financials

• With expectations of a moderate rate-cut cycle and stable credit conditions, banks and financials could outperform as net interest income stabilizes and credit growth supports earnings.

• Diversification beyond pure growth stocks could give financials further traction.

$Financial Select Sector SPDR Fund(XLF)$

4. Consumer Discretionary & Staples (Selective)

• Some forecasts: consumer discretionary may benefit if wage growth supports consumption. Staples may act defensively if volatility rises.

$Consumer Discretionary Select Sector SPDR Fund(XLY)$

5. Healthcare & Biotech (Select Names)

• Expected to deliver solid earnings growth across populations with demographic demand trends, though specific segments are contingent on regulatory outcomes and innovation releases.

6. Materials & Commodities

• Base metals like copper are strong on supply constraints and industrial demand, which can support material stocks. Precious metals like gold remain supported by rate uncertainty and geopolitical stress.

Risks That Could Temper Strength

• If strong GDP leads to less aggressive Fed rate cuts, this could compress equity multiples, especially in growth tech.

• Rising investor complacency, corporate debt stress, or macro slowdown signs could alter market sentiment quickly.

• Holiday season liquidity can distort price action, making technical levels less reliable in late December.

Short term: Positive bias into Boxing Day is reasonable but may be muted by thin trading and mixed macro signals. 2026: A continuation of the rally is plausible under scenarios of earnings growth and moderate Fed support—but the pace and leadership may rotate away from ultra-high-valuation tech into more cyclical or broad-based sectors while still keeping tech as a meaningful driver.

In 2025, the rotation away from growth (especially tech) toward value, cyclical, and overseas markets has gained momentum. Macroeconomic elements, including tariff regulations, inflation rates, interest rate fluctuations, and evolving investor attitudes, have fueled this change.

Summary

On Tuesday, December 23, 2025, the S&P 500 closed at a new record high (6,909.79), marking its fourth consecutive session of gains. This rally was ignited by the release of delayed third-quarter GDP data, which showed the U.S. economy grew at an annualized rate of 4.3%, significantly beating economist expectations of 3.3%.

The report—delayed due to a 43-day government shutdown—signaled robust economic resilience, largely fueled by consumer spending. However, the strong data also pushed bond yields higher as markets priced in a lower likelihood of a January Federal Reserve rate cut. Despite this, growth stocks surged, with AI-linked mega-caps like Nvidia and Amazon driving the index higher.

Can this strength continue into Boxing Day and 2026?

Short Term (Boxing Day & Year-End): Yes, immediate momentum favors the bulls. The market is entering the seasonally strong "Santa Claus Rally" period (the last five trading days of the year and the first two of January). However, trading volume is likely to be thin due to the holidays, which can exacerbate volatility.

2026 Outlook: The outlook remains generally positive but comes with increased caution:

• Bull Case: Major institutions like J.P. Morgan and Fidelity forecast continued gains for 2026, driven by double-digit earnings growth rather than just expanding valuations. The "AI supercycle" is expected to provide a durable tailwind for corporate profits.

• Bear Risks: The primary risks include sticky inflation and "priced for perfection" valuations. With the GDP surprise reducing the urgency for rate cuts, the Fed may keep rates higher for longer, which could pressure equity premiums if growth slows.

Sectors to Power a Possible Rally

To sustain a rally in 2026, market leadership will likely need to broaden, though technology will remain the core engine.

1. Technology & AI (The Engine): The "AI trade" is far from over. Unlike the speculative phase, 2026 focus will shift to companies effectively monetizing AI. This includes semiconductor manufacturers and software infrastructure firms that are seeing tangible earnings growth from capital expenditures.

2. Industrials: As the U.S. continues to focus on reshoring manufacturing and upgrading infrastructure (energy grids, data centers), the industrial sector is poised to benefit from sustained capital spending.

3. Healthcare: With an aging demographic and continuous innovation (such as the recent approval of oral weight-loss treatments), this sector offers a defensive growth alternative if the broader economy cools down.

4. Communication Services: This sector, housing major internet and media giants, remains attractive due to its alignment with digital advertising growth and streaming profitability.

Appreciate if you could share your thoughts in the comment section whether you think sector rotation will be back for tech stocks and continue to power S&P 500?

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire @MillionaireTiger appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.