December 15, 2025 — The market’s most persistent seasonal storyline is back: will the “Santa Claus rally” save the final stretch of the year, or is Wall Street about to get a lump of coal?
As the last full trading week of 2025 begins, investors are trying to stabilize after a tech-led slide last week—while juggling a rare mix of cross-currents: delayed U.S. economic data due to the government shutdown, multiple major central bank decisions, renewed worries about an AI-driven capex bubble, and fresh tremors from China’s property market. [1]
Wall Street starts the week cautiously higher—while the “AI trade” tries to find its footing
U.S. stocks were modestly higher in choppy early trading Monday, December 15, as heavyweight tech names attempted to rebound and investors positioned for a packed week of economic releases. Around mid-morning in New York, Reuters reported the Dow up about 0.20%, the S&P 500 up about 0.33%, and the Nasdaq up about 0.39%. Consumer discretionary outperformed with Tesla up sharply, while Nvidia also bounced. [2]
But the day’s tape also underscored how fragile sentiment can be in thin, year-end liquidity. One of the biggest single-stock moves came from iRobot, whose shares plunged after the Roomba maker filed for Chapter 11 bankruptcy protection and said it would go private via a buyout by its primary manufacturer, Picea Robotics. [3]
That mix—selective risk-on buying in megacaps alongside abrupt downside in weaker balance-sheet names—captures the mood going into mid-December: investors aren’t abandoning equities, but they’re demanding a higher bar for “story stocks,” especially in AI.
The Santa Claus rally: a popular label—and an often-misunderstood one
The “Santa Claus rally” has become shorthand for year-end strength, but market historians and strategists caution that not every December uptick deserves the name.
MarketWatch’s analysis of seasonal data argues that commentators often misattribute early-December gains to Santa, even though historical patterns show mid-December can be soft—frequently linked to tax-loss selling—and that above-average performance tends to cluster later in the month, closer to the final week of the year. In other words: early cheer can be real, but it may be driven by catalysts like Fed policy and positioning rather than a repeatable holiday pattern. [4]
That skepticism is increasingly relevant in 2025 because the market’s biggest drivers—AI megacaps, bond yields, and central bank expectations—are pulling attention away from seasonal narratives. Reuters’ markets commentary on Monday framed the question bluntly: after a bruising AI selloff and rising long-end yields, does it make sense to keep banking on a late-December lift? [5]
But some strategists still see “room on the calendar”
Not everyone is ready to cancel the year-end rally story. A TheStreet Pro commentary published Monday argued that seasonality can still “play out,” emphasizing that the second half of December is typically the more important window to watch for a “Christmas gift” to Wall Street. [6]
Taken together, the market debate isn’t really “Santa or no Santa.” It’s whether the forces driving risk assets right now—AI spending scrutiny, rates volatility, and global policy divergence—will allow any seasonal tailwinds to matter.
AI anxiety is the big variable—and it’s spreading beyond just “tech stocks”
The market’s year-to-date gains have been heavily shaped by artificial intelligence optimism, but the second half of December is increasingly about a more uncomfortable question: who is paying for the AI buildout, and what happens if the payoff takes longer than investors expect?
On Monday, Bridgewater Associates’ co-CIO Greg Jensen warned that the AI spending boom is entering a “dangerous” phase as major firms rely more on external capital to finance massive projects. He flagged a “reasonable probability” of a bubble forming if spending continues to outpace cash generation. A UBS report cited in the Reuters piece said AI data center and project financing surged to $125 billion through November 2025, up from $15 billion in the same period of 2024—an acceleration that helps explain why markets are suddenly more sensitive to capex and debt. [7]
This is the deeper reason the “Santa rally” conversation feels unsettled in 2025: if investors are actively repricing the AI capex cycle, seasonal patterns may get drowned out by the much larger question of valuation and funding.
Hedge funds appear to have rotated early
In a separate Reuters report, Goldman Sachs data showed hedge funds sold Hong Kong and Japanese stocks last week—particularly technology and consumer names—just before regional indices weakened amid concerns about inflated tech values. The note also pointed to Asia as the most net-sold region, and described fresh short positioning in Japan alongside long selling in Hong Kong. [8]
Even if U.S. markets eventually regain traction into year-end, these kinds of flows suggest “smart money” is already treating the AI complex as a trade that must be sized carefully—not simply held because it’s December.
The Fed’s “hawkish cut,” liquidity signals, and why bond yields still matter more than holiday headlines
The Federal Reserve remains the anchor for risk sentiment, but its message has been complicated. Reuters’ “Morning Bid” described last week’s Fed move as a rare “hawkish cut”: policymakers delivered a widely expected 25-basis-point rate cut, but also signaled a more cautious trajectory ahead—while unveiling a Treasury bill buying program beginning at $40 billion per month. [9]
The combination has left investors with two competing interpretations:
- The supportive view: easier policy plus T-bill purchases help stabilize liquidity conditions.
- The cautious view: the Fed may be nearing a pause, and longer-term yields can still rise if investors worry about inflation persistence or fiscal direction.
Reuters’ markets commentary on Monday highlighted that long-dated yields have been rising and yield curves steepening—even after the Fed cut—reflecting anxiety that doesn’t disappear just because short rates drift lower. [10]
This matters for the Santa-rally question because late-December rallies have historically been helped by calm rates and light positioning. In 2025, rates are not calm—and the market is repeatedly re-testing how much valuation it can support while yields remain elevated.
Global markets: central banks, yen strength, and China property stress add to the “risk checklist”
While U.S. investors debate holiday seasonality, global markets are focused on the week’s policy calendar:
- The Bank of Japan is widely expected to hike rates by 25 basis points to 0.75%, and the yen strengthened ahead of the decision. Reuters noted the yen was up about 0.6% at one point Monday, with carry-trade positioning a key watchpoint—particularly if U.S. tech volatility returns. [11]
- The Bank of England is widely expected to cut, while the European Central Bank is expected to hold steady, according to Reuters market reporting and pricing. [12]
At the same time, China is back on the radar in a way that can hit global risk appetite quickly. Reuters reported renewed stress around state-backed developer China Vanke after bondholders rejected a proposal to delay repayment of a 2 billion yuan ($283.56 million) onshore bond due this week. Vanke moved to seek more time by proposing an extension of the grace period, and its bonds and shares sold off on Monday. [13]
That matters for U.S. investors even if they don’t hold China property exposure directly: the combination of weaker China data, property-sector uncertainty, and central bank divergence can tighten global financial conditions—often showing up first in currencies and long-end yields, and then in equities.
A split screen for 2026: bullish targets meet louder warnings
Even as markets wrestle with December volatility, Wall Street is already publishing 2026 playbooks.
On Monday, Citi set a 2026 year-end S&P 500 target of 7,700, implying a 12.7% gain from the index’s last close cited in the report (6,827.41). Citi’s thesis: corporate earnings remain solid, and AI will still be a defining theme—but with leadership evolving from “AI enablers” (infrastructure builders) toward AI adopters (companies using AI to lift productivity and margins). Citi also laid out a wide range of scenarios—8,300 in a bull case and 5,700 in a bear case—while warning that volatility may increase as the bull market ages and valuation assumptions get tested. [14]
The tension is obvious: Citi’s constructive baseline argues the AI theme remains durable, while Bridgewater’s warning stresses that the financing structure and capex intensity could make the AI cycle more fragile than many investors assume. [15]
That’s why the Santa-rally debate is more than a seasonal curiosity this year. It’s a real-time referendum on whether investors are willing to re-accelerate risk-taking into year-end—or whether they prefer to de-risk, wait for data, and re-enter in January with clearer visibility.
What investors are watching in the week of December 15
Here’s the short list of market-moving catalysts likely to shape whether any late-December bounce can build momentum:
- Delayed U.S. jobs data (including October and November nonfarm payrolls) and U.S. inflation data, both closely watched after disruptions from the government shutdown. [16]
- Central bank decisions from the BOJ, BOE, ECB (and others), which could jolt currencies, global yields, and equity style leadership. [17]
- AI capex and funding headlines, including whether more companies echo the concerns that hit the sector last week—and whether the market continues rotating away from the most crowded tech trades. [18]
- Policy and leadership signals that influence rate expectations. Reuters reported that President Donald Trump said he was leaning toward either Kevin Warsh or Kevin Hassett as a candidate to lead the Fed next year—adding another variable to the rates outlook. [19]
Bottom line: Santa can still show up—but 2025’s market is demanding proof
Seasonality may offer hope, and some strategists argue the second half of December is the window that matters most. But the market entering this final stretch of 2025 is not driven by holiday vibes—it’s driven by policy divergence, bond-market volatility, and a fast-evolving AI investment narrative that’s increasingly judged by cash flow and financing, not just growth potential.
If the coming data and central bank decisions reduce uncertainty, year-end optimism could still reassert itself. If not, investors may decide that in 2025, the safer trade is to stop listening for sleigh bells—and start watching yields. [20]
References
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