Have you ever noticed how the stock market sometimes feels like it’s running on pure emotion rather than cold, hard fundamentals? Right now, as we flip the calendar toward December 2025, that feeling is stronger than ever. The S&P 500 just survived its first meaningful pullback in months, everyone exhaled, and suddenly the same people who were panicking two weeks ago are asking the same question: are we on the cusp of the famous year-end rally?
I’ve been around long enough to know these conversations tend to pop up every November. But this time something feels different. The data is screaming that investors, both institutional and retail, are unusually light on stocks heading into the final stretch of the year. And history shows that when cash is sitting on the sidelines this late in the game, December can deliver some of the most explosive moves of the entire bull market.
The One Chart Everyone on Wall Street Is Whispering About
Let me paint the picture for you. Comprehensive measures of investor exposure—think hedge fund beta, pension fund equity allocations, household stock ownership—are hovering around neutral or even slightly below average. For a market that’s three years into a bull run and sitting less than 1% from all-time highs, that’s almost shocking.
In plain English: most people don’t own as much stock as you would expect at this stage. The “wall of worry” everyone loves to talk about? It’s still standing tall. And in my experience, that’s usually jet fuel for the next leg higher.
“Our sentiment indicator has spent most of the year in negative territory reflecting relatively conservative institutional investor positioning. The wall of worry has been extremely high this year and remains omnipresent—this is a bullish signal.”
Head of Americas equities trading at a major investment bank
What November’s Scare Actually Accomplished
Remember that nasty three-week drop we just lived through? Turns out it did exactly what bull markets need every so often—it shook out the weak hands. Inverse and leveraged ETFs saw record volume as retail traders and systematic funds hit the panic button. Bitcoin cratered from six figures to the low 80s, dragging speculative portfolios down with it.
By the time the S&P 500 put in its low a week ago Friday, a huge amount of risk had already been purged. Volatility-targeting strategies slashed exposure. Trend-following CTAs flipped short or neutral. Retail brokers reported margin debt dropping sharply.
And then—almost on cue—the market ripped higher. Five days, nearly 5% straight up. November flipped from a 4.5% intra-month loss to a small gain. But here’s the kicker: most of that rebound happened without heavy retail participation. The dip buyers were predominantly fast-money accounts covering shorts and institutions putting cash to work quietly.
The Three Big Buckets That Just De-Risked
- Retail traders—burned by the crypto collapse and margin calls—went to cash.
- Volatility-targeting funds—those giant pools that automatically sell when volatility spikes—were forced to cut equity exposure aggressively.
- Commodity trading advisors (CTAs)—the trend-following crowd—flipped to neutral or short during the selloff.
All three groups now have dry powder—or in the case of systematic strategies, mechanical models that will force them to chase price higher if the rally continues. That’s what technicians call “pent-up buying power.” And it’s sitting right there, waiting for a catalyst.
Meanwhile, Corporations Are About to Open the Buyback Floodgates
Here’s the part that really gets me excited. While hedge funds and retail traders were hitting the sell button in November, corporate treasurers were doing the opposite. Many companies pause repurchases around earnings season and during periods of uncertainty. With Q3 results now in the rearview mirror and visibility improving into 2026, share-repurchase budgets are getting activated again.
We’re talking hundreds of billions of dollars that tend to hit the market in the final six weeks of the year. Companies love buying their own stock when prices are off the highs and sentiment is shaky—it’s the ultimate contrarian move. And unlike retail money that chases momentum, corporate buying is steady, mechanical, and overwhelmingly price-insensitive.
Put simply: demand is about to go on autopilot just as a huge chunk of potential supply (panicked sellers) has already been exhausted.
Seasonal Tailwinds Are Lining Up Perfectly
Let’s not ignore the calendar. December has historically been one of the strongest months of the year for U.S. equities, especially in the final two weeks. Pension funds rebalance toward their equity targets. Bonus money hits retail accounts. Portfolio managers who are underweight scramble to window-dress performance.
Add a Federal Reserve that looks almost certain to deliver another rate cut on December 10, and the macro backdrop starts looking awfully friendly. Economic surprises have been beating expectations again. Inflation continues to cool without a recession materializing. The “soft landing” narrative is back in full force.
“Three big buckets of investors—retail, vol-target funds, and CTAs—de-risked during the selloff. On the other side of the ledger, corporations are gearing up to buy the market into year-end.”
Founder of an independent research firm
Yes, We’ve Heard This Story Before—And It Didn’t Always End Well
Now, full disclosure: I was having déjà vu reading some of these notes. Last year we heard almost the exact same arguments in late November 2024. The market had just pulled back, positioning looked light, buybacks were coming, and everyone got excited about a year-end melt-up.
Result? The rally peaked a week into December and then spent the rest of the month chopping sideways-to-down. So the skeptics have a point when they say “be careful what you wish for.”
But here’s where this year feels different to me. Last year’s pullback was shallow and sentiment never truly washed out. This time we actually saw real capitulation—inverse ETF volume hitting levels only seen at major lows, systematic funds forced to maximum de-risking, crypto portfolios blown up. The emotional cleansing feels more complete.
Market Breadth Is Sending the Right Signals
Another encouraging sign: the rally off the lows hasn’t been driven by the usual suspects. Nvidia dropped 12.5% in November—hardly the stuff of bubble leadership—and yet the S&P 500 still finished in the green. That tells me the market is finally spreading its wings beyond the Magnificent Seven.
Small caps, value stocks, financials, industrials—all participated in the bounce. Advance-decline lines look healthy. Equal-weighted indexes are starting to outperform. In a real bull market, leadership eventually broadens. We may finally be seeing the early stages of that rotation.
What Wall Street Strategists Are Saying for 2026
Perhaps the most interesting development is how bullish the sell-side has suddenly become. A dozen major firms have published their 2026 S&P 500 targets, and every single one sees upside from current levels. The median call is around 7,500—with the average closer to 7,580—that’s roughly 10% higher than where we closed last Friday.
That might not sound aggressive, but consider this: for most of 2025, the average strategist target was actually below the prevailing index level. When the Street flips from cautious to unanimously constructive, it’s usually a sign that the path of least resistance is higher.
Consensus expects 13% earnings growth next year. If valuations simply hold steady—and they rarely contract in the early stages of a broadening bull—double-digit total returns look almost baked in.
The Bottom Line: Probabilities Favor the Bulls
Look, nobody has a crystal ball. Markets love to make fools of anyone who sounds too confident. But when I step back and weigh all the factors—light positioning, mechanical buying from corporations and systematic funds, improving breadth, seasonal tailwinds, dovish central banks, and a unanimous Wall Street chorus—I struggle to find a more favorable setup for a year-end rally.
Could we get a quick 5-7% move higher before anyone has time to jump aboard? It wouldn’t surprise me at all. Will it last into January and beyond? That’s the bigger question. But for now, the risk/reward feels skewed toward the bulls.
Sometimes the market hands you a gift-wrapped opportunity. This December might just be one of those times.
So keep an eye on volume, watch the systematic flow indicators, and don’t be shocked if Santa comes early this year. The ingredients are all there. Whether the rally turns into a sprint or a marathon remains to be seen—but I know where I’d rather be positioned heading into the final month of 2025.
