By Pete Biebel, Senior Vice President, Senior Investment Strategist
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Over the next week and a half, we’ll be putting the wraps on 2025. It was a year in which stocks were fairly naughty through the first several months but ended up making the “Nice” list for a third consecutive year. Following a quite Grinch-ish 2022, the subsequent three years have brought very lucrative tidings. The S&P 500 Index (SPX) has presented a very merry 80% gain since the end of 2022. Earlier this year, at its April low, SPX had fallen nearly 20% from its February high and was down about 15% for the year. Bah humbug! But from that low, SPX has climbed an amazing 37% in seven and a half months and begins this week with roughly a 16% gain for the year. And it doesn’t show signs of stopping; as 2025 ends, the markets are projecting further good tidings for 2026.
For 2025, the NASDAQ Composite Index (COMP) has again outgained the other major indices. COMP remains the king, pa rum pum pum pum. Up 50% since Spring, pa rum pum pum pum. COMP is holding on to a gain of just over 20% for the year. While that is the best of the U.S. market averages, it’s nowhere near the gains of many international equity markets. Indices for Brazil, Germany and Euro stocks are all up more than 30% for the year. Indices for emerging markets, the United Kingdom and China large caps are up more than 25%. But all that glitters is not equities: Gold has gained more than 60% this year. Santa baby, just slip an ingot under the tree for me.
Not surprisingly, technology (playing the role of Rudolph) is leading all of the other sectors this year. One popular measure of sector performance shows technology up a bit more than 24% for the year. It’s the only one of the 11 S&P sectors that has a larger gain than COMP. Communications services is second-best with a year-to-date (YTD) gain of just over 20%. Five of the 11 sectors have just single-digit gains or worse. They range from the roughly 8% YTD gain for the basic materials sector to a roughly 1% YTD loss for real estate.
Last week was the final five-session week of the year. It had more starts and stops than an Amazon delivery driver. The trend through the first three days of the week was clearly lower. On Tuesday, the delayed employment report showed 64,000 jobs gained in November following a 105,000 loss in October. The report also revealed that the unemployment rate ticked up to 4.6%, its highest level in more than four years. The trend lower culminated on Wednesday when steep losses in Oracle Corp. (ORCL) and Broadcom Inc. (AVGO) dragged tech stocks lower. That morning, the Financial Times reported that Blue Owl Capital, ORCL’s largest lending partner, pulled out of funding a planned $10 billion data center in Michigan. ORCL fell 5.4% that day and AVGO lost 4.5%. Alphabet, NVDIA Corp. and Tesla all fell more than 3% that day. As of Wednesday’s close, SPX was down about 2.5% for the week, while COMP was down a little more than 2%.
Then Thursday morning arrived, along with delayed inflation data, and suddenly all was calm, all was bright. The Consumer Price Index (CPI) report showed inflation over the past 12 months was running at just 2.7%, down from 3% in the report for September. Stock index futures shot higher on the news, and even though many analysts warned that the report was based on limited data and was likely influenced by early holiday discounts, stocks held on to most of the early gains into the close. The rebound continued on Friday, with SPX climbing 0.9% and COMP gaining 1.3%, erasing all of the early-week losses. For the week, COMP gained 0.48% and SPX netted a mere 0.10%. But that’s still better than a one-year membership in the jelly-of-the-month club.
As the new week begins, we’re just two and a half sessions from the beginning of the seasonally bullish Santa Claus Rally period. It covers the final five trading days in the current year and the first two days of the new year. While there is no fundamental basis for the phenomenon, factors like holiday mood, tax-driven trading, thin holiday markets and just the crowd’s expectation that it will happen may contribute to its relative reliability. While SPX was down over that stretch a year ago, historically, that period has produced average returns in SPX of about 1.5% across those seven sessions.
While the extreme market valuations are frightful, the holy tide of rosy earnings projections doth bring redeeming grace. Early this year, analysts’ estimates for earnings growth were decreased under the threat of tariffs, but those estimates have been climbing steadily through the second half of the year. And, as noted above, it doesn’t show signs of stopping. Research firm CFRA projects earnings per share for the S&P 500 will rise from 2025’s $271ish to about $307 in 2026, an increase of more than 13%. As long as earnings can increase at that pace, investors can feel justified in paying up for stocks with elevated price/earnings ratios.
Jingle bell time is a swell time to rebalance portfolios and perhaps close out some losing positions for tax losses. If you’re making a list and checking it twice, note that nearly one-quarter of the 503 tickers in the S&P are down more than 10% year-to-date, including about 60 stocks that have lost more than 20%. In addition to merely culling a few losing positions, you might want to offset those losses by paring positions in some of the biggest winners or most richly valued stocks.
In my articles over the past few months, I have expressed concern about the extremely rich valuation of the stock market and the extreme optimism in the sentiment gauges. I repeatedly wrote that there was no reason to rush for the exits, only that there were enough warning signs to suggest that a little bad news in the coming year could go a long way. Despite some strong weeks recently, SPX and COMP are both down over the past two and a half months. Right now is a seasonally bullish time of year, so some gains from now into January seem likely. If the gains can hold on into February and the beginning of the fourth-quarter earnings season, then better-than-expected news on profits and forward guidance could generate enough upward momentum to keep things going for a while longer. In the interim, whether because of news on inflation, economic growth or geopolitical developments, if SPX falls below 6550 and/or the yield on 10-year Treasury notes rises above 4.25%, that would signal that it was time for a more defensive stance.
Last week also brought news that traders may be able to jingle around the clock in the year ahead. Last Monday, NASDAQ said it would submit paperwork with the U.S. Securities and Exchange Commission to roll out round-the-clock trading of stocks in the second half of 2026. The proposal indicated that the exchange is planning to expand to 23 hours of trading a day, five days a week. It proposed a day session from 4 a.m. to 8 p.m. (Eastern time) and a night session from 9 p.m. to 4 a.m., with a one-hour pause for maintenance.
Nearly all of the economic reports this week will be released on Tuesday. The various agencies are still in the process of getting caught up. So, while analysts will need to work with delayed reports for another few weeks, barring another government shutdown, the reports will be back on their traditional schedule soon.
Wishing you and yours a very happy and healthy holiday season and that next year, all your troubles will be out of sight.
| Economic Calendar (12/22/25 – 12/26/25) | Previous | Consensus | |
| Monday 12/22/2025 | No reports scheduled | ||
| Tuesday 12/23/2025 | GDP (delayed report), Q3, SAAR | +3.8% | +3.2% |
| Core Personal Consumption Expenditure Inflation, Q3, Y/Y | +2.6% | +2.9% | |
| Durable Goods Orders (delayed report), October, M/M | +0.5% | -1.1% | |
| Durable Goods ex-Transportation (delayed report), October, M/M | +0.6% | +0.3% | |
| Industrial Production, October, M/M | +0.1% | +0.1% | |
| Industrial Production, November, M/M | NA | +0.1% | |
| Consumer Confidence, November | 88.7 | 91.7 | |
| Wednesday 12/24/2025 | Initial Jobless Claims, Week of 12/20 | 224K | 225K |
| Thursday 12/25/2025 | Christmas Day – Markets Closed | ||
| Friday 12/26/2025 | No reports scheduled | ||
Links to previously published commentaries can be found at benjaminfedwards.com/Latest Investment Insights/Market Commentary/Market