It’s that quiet time of year again when the markets start winding down for the holidays, yet there’s still this underlying buzz that keeps traders glued to their screens. Sunday evening, December 21, 2025, and futures are already pointing higher – a small but telling sign that not everyone’s ready to check out just yet. I’ve always found these pre-holiday sessions fascinating; the volume drops, emotions run a bit higher, and every move feels amplified.
A Modest Bounce to Kick Off a Short Week
As the trading week approaches – shortened by Christmas Eve early close and a full day off on Thursday – U.S. stock futures opened with modest gains. The Dow Jones Industrial Average futures added about 100 points, roughly 0.2%. Both S&P 500 and Nasdaq 100 futures were up around 0.3%. Nothing dramatic, but in a market that’s been choppy lately, any green on the screen feels welcome.
Coming off a mixed performance last week, where the broader indexes managed small gains while the Dow actually slipped, investors seem cautiously optimistic. Tech-heavy names helped stabilize things toward the end of the week, and that momentum appears to be carrying over into this holiday-truncated period.
Recapping Last Week’s Mixed Signals
Let’s take a quick step back. The major averages wrapped up the prior week on uneven footing. The S&P 500 eked out a slim 0.1% advance, marking its third positive week in the last four. The Nasdaq Composite did slightly better with a 0.5% rise, also securing a winning week. But the Dow, which had been the standout performer earlier in December, gave back 0.7% and broke its three-week winning streak.
In my experience watching these year-end patterns, the Dow often leads when investors rotate toward value and away from growth. Its recent pullback might simply reflect profit-taking after a strong run. Meanwhile, the late-week push in technology shares provided just enough lift to keep the broader market from turning red.
The market feels like it’s grinding higher one day, then churning sideways the next – classic late-December behavior.
The Return of Artificial Intelligence Momentum
Perhaps the most interesting development last week was the resurgence in artificial intelligence-related stocks. After lagging for a stretch and raising questions about whether the AI trade had run too far too fast, several key names staged impressive comebacks.
One standout story involved a major software company that had been among the bigger laggards. News broke of a deal involving the U.S. operations of a popular short-video platform being sold to a consortium that includes the software giant and a prominent private equity firm. Shares reacted sharply higher, helping reignite enthusiasm across the AI ecosystem.
The perennial leader in graphics processing units also reclaimed some ground, reminding everyone why it remains central to the AI narrative. These moves weren’t isolated – broader sentiment toward cloud computing, data centers, and machine learning applications improved noticeably.
Yet here’s the question lingering in many minds: Is this bounce sustainable into year-end, or merely a temporary reprieve? Valuations in the tech space remain elevated by historical standards, and some investors worry the easy money has already been made.
Rotation and Valuation Concerns
Speaking of valuations, that’s been a recurring theme throughout 2025. While growth stocks – particularly in technology – have driven much of the market’s gains over the past couple years, cheaper areas like financials, industrials, and energy have started attracting more capital.
- Investors chasing value over pure growth
- Rising interest in sectors with more reasonable price-to-earnings ratios
- Portfolio rebalancing ahead of year-end tax considerations
- Defensive positioning in case economic data softens
This rotation isn’t new, but it has accelerated at times during December. When tech pulls back even modestly, money flows into the Dow components and other blue-chip value names. Then, when AI excitement flares up again, the cycle reverses.
Frankly, I’ve found this back-and-forth exhausting to watch at times. It creates opportunities for active traders, sure, but for longer-term investors, it mostly generates noise. The fundamental story – strong corporate earnings, resilient consumer spending, and gradual monetary policy normalization – hasn’t changed dramatically.
Will We See a Traditional Santa Claus Rally?
Every December, market commentators start talking about the Santa Claus rally – that tendency for stocks to rise during the final five trading days of the year and the first two of the new year. Historically, it’s been a reliable seasonal pattern, though far from guaranteed.
This year, skepticism runs higher than usual. The S&P 500 has been struggling to hold above certain technical levels that technicians watch closely. A failure to break convincingly higher could signal more consolidation ahead rather than a sharp upward move.
My view a couple of weeks ago was an end-of-year grind. And I think that’s become an end-of-year churn.
– Justin Bergner, portfolio manager at Gabelli Funds
Bergner’s comment captures the mood perfectly. Instead of a smooth ride higher, we’ve seen alternating days of optimism and caution. Low trading volume during holiday weeks can exaggerate moves in either direction, making prediction even trickier.
What to Watch in the Coming Days
With only a few trading sessions left before Christmas, here are the factors likely to influence direction:
- Economic data releases – though the calendar lightens significantly this week
- Any fresh developments in technology sector deals or earnings guidance
- Corporate buyback activity, which often picks up in December
- Year-end portfolio window dressing by fund managers
- Geopolitical headlines that could swing risk sentiment
Beyond the immediate term, many investors are already positioning for 2026. Expectations around interest rates, inflation trends, and potential policy changes will start taking center stage once the holidays pass.
One area receiving growing attention is how artificial intelligence adoption spreads beyond the handful of mega-cap companies that have dominated returns. Will enterprise spending on AI infrastructure continue accelerating? Can software providers translate hype into recurring revenue growth? These questions will likely shape market leadership next year.
Navigating Holiday Week Volatility
If there’s one piece of advice I’ve learned over years of observing December trading, it’s to expect the unexpected. Thin liquidity means a single large order or headline can move prices more than usual. That’s both a risk and an opportunity.
For most individual investors, the smartest approach remains staying disciplined with long-term allocations rather than trying to trade every wiggle. The holiday season is stressful enough without adding unnecessary portfolio anxiety.
That said, keeping an eye on key levels makes sense. If the S&P 500 can push convincingly above recent highs, it might attract follow-through buying. Conversely, a break lower could trigger some defensive selling before everyone heads off for eggnog and family time.
Looking Beyond the Holidays
Stepping back from the day-to-day noise, 2025 has been another remarkable year for equities. Despite periodic pullbacks and plenty of reasons for caution – elevated valuations, geopolitical tensions, shifting monetary policy – the market has continued climbing a wall of worry.
The dominance of technology and particularly AI-related companies has been the defining story. Yet beneath the surface, breadth has improved at times, with small caps and international markets participating more meaningfully during certain periods.
As we turn the calendar to 2026, the big unknowns include:
- How quickly artificial intelligence translates into productivity gains across the economy
- The trajectory of interest rates and inflation
- Potential changes in fiscal and regulatory policy
- Corporate earnings growth outside the magnificent few tech giants
- Global economic synchronization or divergence
Plenty to contemplate once the tinsel comes down and trading volume returns to normal. For now, though, the market appears content to drift higher on light volume – exactly the kind of quiet advance that can add up over time.
Whether we ultimately get a full-blown Santa Claus rally or simply more churning into year-end, the underlying trend remains constructive. That’s been the case for most of 2025, and there’s little in the current setup to suggest a major shift before January.
So as futures point modestly higher this Sunday evening, maybe the best approach is simply to enjoy the holidays while keeping one eye on the ticker. After all, markets will still be there – and likely moving – when we return refreshed in the new year.
Here’s wishing everyone reading this a peaceful holiday season and continued success with your investment journey in 2026 and beyond. The path isn’t always smooth, but staying informed and patient usually pays off in the end.
