Wall Street Week Ahead

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•  28 Dec 2025
 

Wall Street is heading toward the close of 2025 at historic highs, and for many traders this feels like a market that refuses to slow down. After shaking off early December volatility, the major US indices are once again trading near record levels, reinforcing the expectation of a strong and confident year-end finish.

The SPX has already set a fresh record ahead of Christmas and is now less than one percent away from the symbolic 7,000 level, a milestone it has never crossed before. If current momentum holds, December could mark the eighth consecutive month of gains for the index, the longest monthly winning streak since 2017 - 2018. For investors who lived through the sharp swings of recent years, this kind of consistency feels unusual and, for some, slightly uncomfortable. At the same time, the tech-heavy Nasdaq, often tracked through QQQ, is wrapping up another double-digit year, confirming that risk appetite has not disappeared.

Still, beneath the calm surface, investors know this is not a one-directional story. The market attention is firmly fixed on the Federal Reserve. Over its last three meetings, the Fed cut rates by a total of 75 basis points, bringing the benchmark rate to a range of 3.50% - 3.75%. The most recent decision passed by a narrow margin, highlighting growing differences of opinion within the committee. Traders are now waiting for the upcoming FOMC minutes, hoping they will clarify whether the central bank is leaning toward further easing or preparing to pause.

Adding another layer of uncertainty is the approaching end of Jerome Powell term as Fed chair in May. Markets are already reacting to speculation around his successor, with investors watching closely for any signal from President Donald Trump. In a period of thin year-end liquidity, even subtle hints about the next Fed chair could trigger outsized moves, something experienced traders are keenly aware of.

What makes this stage of the rally especially interesting is how leadership within the market has shifted. Technology stocks, which carried the market for much of the past few years, have lagged since November. Concerns about the scale and return on artificial intelligence investments have cooled enthusiasm in parts of the sector. In their place, other areas have stepped forward. Financials, transportation, healthcare, and small-cap stocks have delivered relative outperformance, reflecting a clear rotation toward segments with more reasonable valuations and lower exposure to concentrated tech risks.

This rotation sends a reassuring message. It suggests that the rally is broadening rather than becoming more fragile. Instead of relying on a narrow group of mega-cap names, the market is finding support across multiple sectors. This kind of balance often helps sustain longer-term trends, even if short-term volatility returns.

Looking ahead to the transition from 2025 into 2026, trading conditions are expected to be quiet. Markets will be closed on New Year Day, and the economic calendar is relatively light. That said, traders will still be watching a few key data points, including the Fed minutes, initial jobless claims, and final PMI readings from the US, Europe, and the UK. With earnings largely out of focus this week, macro expectations will continue to drive sentiment.

Seasonality is also back in the spotlight. Many investors are hoping for a classic "Santa Claus rally" a pattern where stocks tend to rise in the final days of the year and the first days of the next. Historically, the SPX has been positive in roughly 79% of these periods, with an average gain of about 1.3%. While no seasonal trend is guaranteed, this statistic reinforces why traders are reluctant to step aside too early.

As 2025 draws to a close, the market is delivering another double-digit annual return, a sign of steady confidence in the US economy despite lingering questions about rates, leadership at the Fed, and sector valuations. For traders and investors alike, the challenge now is not chasing what already moved but understanding where the next phase of leadership may come from. Those willing to look beyond the headlines may find that the most interesting opportunities are forming just beneath the surface, waiting for deeper analysis as 2026 approaches.

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