Remember that feeling when the market opens red in December and everyone instantly starts whispering that the Santa Claus rally is dead? Yeah, we’ve all been there. But something interesting happened yesterday that made me stop and take notice.
After a brutal November hangover and an ugly start to the month, stocks suddenly found their footing. Tech names ripped higher, Bitcoin clawed back some of its losses, and risk appetite came roaring back like it never left. Honestly, it felt like the market took one deep breath and decided it wasn’t ready to roll over just yet.
So here we are, barely into December, and the age-old question is back: are we finally setting up for the year-end rally everyone has been praying for?
The One Chart Every Trader Is Watching Right Now
If you only look at one piece of data this week, make it the CME FedWatch Tool. As I write this, the probability of a 25-basis-point cut at the December 10 meeting sits at 89.2%. That’s not just high — it’s a massive swing from where we were four weeks ago when it was basically a coin flip.
Rate-cut odds jumping that hard in such a short window usually acts like rocket fuel for risk assets. Lower borrowing costs, cheaper money, higher multiples — you know the script. And the market clearly knows it too.
In my experience, when the Fed pivots from “we might pause” to “yeah, we’re probably cutting,” the path of least resistance for equities is almost always higher into year-end. The only question is how sharp and how sustained the move ends up being.
Tech Comes Roaring Back
Tuesday belonged to the usual suspects. The big tech heavyweights that got punished last week staged an impressive bounce. Breadth wasn’t amazing, but it didn’t need to be — when the giants move, the indexes follow.
Perhaps more encouraging was the price action in the semiconductor space and anything AI-related. European names got an extra boost after a certain French AI startup dropped new models that apparently rival the best open-source offerings out there. When Nvidia is quietly writing checks to European startups, you know the theme still has legs.
“Markets appear to be focusing instead on better-than-expected earnings projections for the fourth quarter and calendar year 2026.”
Global equity strategist at a major U.S. investment institute
That quote pretty much sums it up. The macro noise is loud — tariffs, layoffs, crypto volatility — but forward earnings estimates keep creeping higher. And right now, that’s what matters most.
Crypto Stops the Bleeding (For Now)
Let’s talk about the elephant in the room: Bitcoin and the broader crypto market. A 20% drawdown in less than two weeks had a lot of people screaming “crypto winter is back.”
Yesterday’s recovery wasn’t exactly a moon shot, but it was enough to remind everyone that sharp sell-offs in bull markets are normal. The real test will come if we can hold above the 200-day moving average. Lose that, and yes, the bears will have a real case.
Interestingly, some of the publicly-listed companies that hold large crypto treasuries are now trading at steep discounts to the value of their digital assets. That kind of disconnect usually gets resolved one of two ways — either the underlying crypto rallies hard, or the stocks catch a bid as arbitrage players step in.
Either outcome would be constructive for overall market sentiment.
The Tariff Shadow Hanging Over 2026
Look, I’m not going to sugarcoat it — the incoming administration’s tariff plans are the single biggest wildcard right now. Recent surveys show corporate executives already bracing for higher costs, and the latest manufacturing employment gauge just printed its lowest reading since summer.
But here’s the thing: markets have an incredible ability to look past near-term pain when the longer-term growth outlook remains intact. And right now, 2026 earnings growth forecasts are still trending north of 12% for the S&P 500.
Investors seem to be making a calculated bet that any tariff-induced slowdown will be sharp but short-lived — the classic “grow through the pain” trade.
Why December Seasonality Still Matters
Call it cliché if you want, but December has been kind to stocks more often than not. Since 1950, the S&P 500 has averaged a gain of about 1.3% in December — nothing earth-shattering, but solidly positive.
- Pension fund rebalancing tends to favor equities
- Window dressing by fund managers
- Bonus money hitting retail brokerage accounts
- General “risk-on” holiday spirit
Combine that seasonal tailwind with the highest Fed cut probability in months, and you start to understand why so many traders are reluctant to bet against a rally right now.
Positioning and Sentiment: Room to Run?
One of the more under-discussed points: investor positioning heading into December actually looks pretty light. A lot of hedge funds took profits in November or went into the month with lower gross exposure after the wild swings.
When positioning is light and price starts moving higher, the forced covering can add a whole new layer of momentum. We saw exactly that yesterday afternoon — shorts getting squeezed, dip-buyers piling in, the usual late-year fireworks.
What Could Derail the Party
Of course, nothing is guaranteed. A surprise hawkish tilt from the Fed commentary, a major escalation in trade rhetoric, or another leg down in crypto could change the mood fast.
And let’s be real — valuations aren’t exactly screaming cheap after the run we’ve had. The S&P 500 forward P/E is still above 21x, well above historical averages.
But markets can stay overvalued longer than most people expect, especially when the liquidity backdrop remains accommodative.
The Bottom Line
Here’s where I land: the ingredients for a decent year-end rally are absolutely present. High Fed cut probability, improving earnings revisions, light positioning, and seasonal tailwinds all point in the same direction.
Could we still get some volatility? Of course. Will every sector participate? Probably not. But the path of least resistance into year-end looks higher to me.
Sometimes the market just needs a reminder that the trend is still your friend. Yesterday felt like one of those reminders.
So yeah, maybe — just maybe — Wall Street is about to get its Christmas wish after all.
