Wall Street Week Ahead

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•  21 Dec 2025
 

•   NVDA  
   
  +1.20%
•   ORCL  
   
  +2.39%

Wall Street is heading into a shortened Christmas trading week, but investor focus remains intense. With fewer trading days, every data release and market move carries more weight. Traders and long-term investors alike are watching inflation, economic growth, bond yields, and AI stocks closely, hoping for clarity as the year comes to a close while preparing for continued volatility.

The key event early in the week is the Core PCE inflation report, the Federal Reserve’s preferred measure of inflation. Market participants view this data as critical for understanding whether inflation continues to cool at a pace that allows the Fed to maintain a growth-friendly stance into next year. A softer Core PCE reading could support equities and risk assets, while a hotter number may push bond yields higher and pressure stocks. Shortly after, the delayed U.S. GDP report for the third quarter is expected to offer insight into the true strength of the American economy, especially as early signs of labor market cooling begin to surface.

Additional economic data, including durable goods orders, industrial production, and consumer confidence, will shape expectations around interest rates and overall risk appetite. In a holiday week with thinner liquidity, even modest surprises in these reports can trigger outsized market reactions. This is especially important as long-term bond yields continue to rise globally, making fixed income more attractive relative to equities and increasing the valuation pressure on growth stocks.

December has not followed its usual seasonal script. Despite a strong year overall, with the SPX up more than 15% and on track for a third straight year of double-digit gains, the market has struggled in recent weeks. Both the S&P 500 and the NDX are showing monthly declines, reflecting growing uncertainty rather than outright fear. Volatility has increased as investors reassess Federal Reserve policy expectations and question how much optimism is already priced into the market.

Technology and AI stocks, which led the rally for much of the year, are now facing tougher scrutiny. Investors are increasingly focused on the scale and timing of returns from massive AI infrastructure spending. Concerns around data center investments and large projects, including those linked to $ORCL, have weighed on sentiment across the AI space. Even leaders like $NVDA are no longer immune to short-term pressure as the market debates whether future earnings growth can justify current valuations.

As confidence in AI cools, capital is quietly rotating. Financials, transportation stocks, and small- and mid-cap companies are seeing renewed interest as investors search for areas with more reasonable expectations and potential upside. This shift reflects a broader mindset change: less chasing momentum, more focus on risk-adjusted returns as the year ends.

Attention is also turning to the traditional Santa Rally period, which officially begins midweek. Historically, the S&P 500 has posted an average gain of about 1.3% during the final five trading days of the year and the first two days of January. While this pattern keeps hopes alive, many analysts expect any seasonal rally this year to be limited. Rising bond yields, uncertainty around interest rates, and lingering doubts about AI-driven growth suggest that gains, if they appear, may be uneven and short-lived.

Beneath the surface, analysts point to mixed signals. Equity markets have moved sideways for weeks despite strong capital inflows, high exposure among active fund managers, and optimistic retail sentiment. Foreign investment into U.S. equities has reached record levels, exceeding $700 billion over the past year, while U.S.-focused ETFs have attracted heavy inflows in recent months. At the same time, risk is building in less visible areas. Credit exposure to shadow banking has expanded rapidly, and private debt markets have underperformed the broader equity market, raising concerns about hidden stress within the financial system.

This shortened holiday week demands discipline and attention to macro signals rather than headlines alone. It highlights the importance of understanding where risk is increasing and where expectations may already be too high. The coming days may not deliver definitive answers, but they can offer valuable insight into how markets are positioning for the year ahead. For those looking to stay one step ahead, this may be the right moment to explore the deeper forces shaping the next phase of the market cycle.

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