Stocks wrapped up Friday's session—the second day of the widely watched "Santa Claus rally"—with modest declines, following a five-day winning streak. Both the S&P 500 (^GSPC) and the Dow Jones Industrial Average (^DJI) remained close to the record highs achieved on Christmas Eve.
Over the holiday-shortened week, the benchmark S&P 500 advanced approximately 2.3%, while the blue-chip Dow and the tech-heavy Nasdaq Composite (^IXIC) climbed roughly 1.6% and 2.5%, respectively.
Wall Street now enters another relatively quiet holiday week. Key events taking center stage include employment data from ADP and the minutes from the Federal Open Market Committee's December meeting, both scheduled for release on Wednesday, as markets aim to carry positive momentum into 2026.
'Santa Claus rally' looks to continue
2025 has proven to be a year of repeated market highs.
After a significant downturn triggered by President Trump's tariff policies in the spring, all three major stock indexes have staged a robust recovery, setting multiple new records. Precious metals have led a massive rally, with gold (GC=F) and silver (SI=F) reaching historic peaks as investors sought safe-haven assets, while copper (HG=F) also hit a record high amid supply chain disruptions and tariff uncertainty.
2025 also witnessed Nvidia (NVDA) achieving a landmark $5 trillion market capitalization, as major technology players aggressively increased spending to compete in the intensifying AI arms race.
With stocks setting fresh records late last week, the market appears well-positioned for a positive Santa Claus rally—a period historically encompassing the final five trading days of December and the 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," noted Adam Turnquist, chief technical strategist at LPL Financial, in commentary.
Wall Street strategists are forecasting that the indexes will maintain this upward trajectory into 2026.
The S&P 500 closed Friday at 6,929.94. Strategists at JPMorgan Chase and HSBC project the index will reach 7,500 by the end of 2026. Morgan Stanley and Deutsche Bank present even more bullish outlooks, setting their respective year-end targets at 7,800 and 8,000. The latter projection implies a potential gain of over 15% 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," stated Dubravko Lakos-Bujas, lead equity strategist at JPMorgan.
'Cautious optimism'
However, investors are approaching 2026 against a backdrop of an economy on somewhat unstable footing.
Even with robust GDP growth and cooling inflation, the U.S. economy is experiencing a "K-shaped" divergence. Higher-income households continue to drive spending and wealth accumulation, while lower-income households face increasing financial strain.
Persistent concerns include potential overspending by Big Tech companies and what some view as unsustainable valuations in the sector. Stressors are also accumulating in private credit and corporate debt markets.
Investors must also navigate a complex landscape of geopolitical uncertainties: the ongoing war in Ukraine, energy market tensions surrounding Venezuela, predictions of a global oil supply glut, a shift toward more isolationist U.S. policies, and surging electricity demand driven by the AI revolution.
As of Friday, traders were pricing in an approximately 80% probability that the Federal Reserve will maintain interest rates at its January meeting, signaling expectations that Chair Jerome Powell's cautious, wait-and-see approach will guide monetary policy.
While strategists at State Street Global Advisors maintain a largely bullish outlook for the U.S. economy in 2026, they cautioned in a client note that due to factors like elevated valuations, "underlining the importance of being selective in exposures" is critical.
This caution, however, hasn't extinguished optimism for a strong 2026. Historical data since 1950 shows the Santa Claus rally has never produced negative returns for more than two consecutive years. (Both 2023 and 2024 were negative.) A positive return this week, LPL Financial's Turnquist noted, would signal a potentially strong start to the new year—though history offers no guarantees.
The key question is whether the market can sustain its current delicate equilibrium.
"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," wrote Eric Teal, chief investment officer at Comerica Wealth Management, in a note.
Teal characterized the outlook for 2026 as one of "cautious optimism."
Economic and earnings calendar
Monday
Economic data: Pending home sales, month-on-month, November (0.8% expected, 1.9% previously); Dallas Federal Reserve manufacturing activity, December (-5.0 expected, -10.4 previously)
Earnings calendar: No notable earnings.
Tuesday
Economic data: ADP weekly employment change, week ended Dec. 13 (11,500 previously); Federal Housing Finance Authority house price index, month-on-month, October (0.1% expected, 0.0% previously); MNI Chicago purchasing managers' index, December (39.5 expected, 36.3 previously); Dallas Federal Reserve services activity, December (-2.3 previously); Minutes released for Dec. 10 FOMC meeting
Earnings calendar: No notable earnings.
Wednesday
Economic data: Initial jobless claims, week ended Dec. 27 (214,000 previously); Continuing claims, week ended Dec. 20 (1.923 million previously)
Earnings calendar: No notable earnings.
Thursday
Economic data: Market is closed for New Year's Day.
Earnings calendar: Market is closed for New Year's Day.
Friday
Economic data: S&P Global US manufacturing purchasing managers' index, December final reading (51.8 expected, 51.8 previously)
Earnings calendar: No notable earnings.
