The S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) both hovered close to record levels established on Christmas Eve as stocks concluded trading on Friday, the second session of the so-called "Santa Claus rally," slightly lower on the day following five consecutive positive days.
The benchmark S&P 500 increased by around 2.3% during the week that was truncated due to the holiday, while the tech-heavy Nasdaq Composite (^IXIC) and the blue-chip Dow both increased by approximately 1.6% and 2.5%, respectively.
Another comparatively quiet holiday week is about to begin on Wall Street. As Wall Street attempts to start 2026 on a high note, employment data from labor market data provider ADP and minutes from the Federal Open Market Committee's December meeting, both issued on Wednesday, will take center stage.
Following a severe decline following the implementation of President Trump's tariff policies in the spring, all three major stock indices have recovered to set numerous records.
Copper (HG=F) reached its own high-water mark due to supply chain disruptions and tariff policy uncertainty, while gold (GC=F) and silver (SI=F) led a massive surge for precious metals, both reaching their historical highs as investors shifted to safety assets.
In 2025, Nvidia (NVDA) became the first business to surpass $5 trillion in market capitalization as the major tech companies increased their expenditures to stay competitive in the AI arms race.
The market is ready for a favorable "Santa Claus rally" usually the final five trading sessions of December and the first two of January. after stocks set new records near the end of last week.
"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," LPL Financial chief technical strategist Adam Turnquist wrote in an email statement.
The indexes are expected to sustain the celebration in 2026, according to Wall Street experts. At 6,929.94, the S&P 500 ended Friday's trading session.
The index is expected to reach 7,500 by the end of 2026, according to strategists at JPMorgan Chase and HSBC. With their 2026 goals of 7,800 and 8,000, respectively, Morgan Stanley and Deutsche Bank are even more optimistic. In comparison to current levels, the latter figure would indicate a rise of more than 15%.
"We see current elevated multiples correctly anticipating above-trend earnings growth, an AI capex boom, rising shareholder payouts, and easier fiscal policy, despite AI bubble and valuation concerns," stated Dubravko Lakos-Bujas, lead equity strategist at JPMorgan.
However, investors are also entering 2026 with a relatively precarious economy. The US economy is becoming more "K-shaped," or fragmented, even if GDP growth has increased and inflation has decreased.
While lower-income households have suffered, higher-income households have been the main drivers of wealth and expenditure growth.
Concerns regarding Big Tech companies excessive expenditure and perhaps unsustainable high valuations in the industry have persisted.
In the areas of corporate debt and private credit, balance sheet pressures have kept building up. In addition, investors must contend with a number of geopolitical uncertainties, such as the conflict in Ukraine, tensions surrounding Venezuela's energy sector and forecasts of a global oil supply glut, a more isolationist posture from US political figures, and the surging demand for electricity to fuel the AI revolution.
Traders believed that Chair Jerome Powell's wait-and-see strategy will continue to influence rate decisions, as seen by their pricing in of over 80% odds that the Federal Reserve will maintain rates at its January meeting as of Friday.
In a note to clients, State Street Global Advisors stated that although its strategists are generally optimistic about the US economy as 2026 approaches, they are "underlining the importance of being selective in exposures" because factors like elevated valuations and market capitalizations continue to be a concern.
Despite this, strategists are still optimistic about a successful 2026. The Santa rally has never experienced negative returns for more than two years in a succession, dating back 75 years to 1950.
(During that time, 2023 and 2024 were also bad years.) According to Turnquist of LPL Financial, if this week's Santa rally yields a favorable return, it will likely indicate a great start to next year, but history is no guarantee.
In a client letter, Eric Teal, chief investment officer of Comerica Wealth Management, stated, "The economy is demonstrating a Goldilocks scenario with above-potential U.S. economic growth, declining but elevated inflation and a less robust labor market."
