Wall Street heads into the second half of December with a familiar mix of momentum and nerves. The S&P 500 just logged a record close on Thursday, December 11 (6,901.00), then slipped on Friday, December 12 as the market reassessed the “AI trade” and a jump in Treasury yields. [1]
The big picture for a US stock market forecast for December 2025 now hinges on three fast-moving forces:
- what the Federal Reserve’s “cut-and-pause” message really means for 2026,
- a backlog of delayed economic reports that hits next week, and
- whether seasonal tailwinds can overpower profit-taking and thin holiday liquidity. [2]
Below is a detailed, news-driven outlook for the S&P 500, Dow Jones, and Nasdaq for the remainder of December 2025—grounded in the latest reporting and strategists’ calls from the past several days.
Where the US stock market stands right now
The market’s December storyline has been unusually sharp even by year-end standards:
- Thursday, Dec. 11: The S&P 500 finished at a record (6,901.00), while leadership rotated away from some AI-linked names and toward areas like financials and materials. [3]
- Friday, Dec. 12: Stocks pulled back. The S&P 500 fell 1.07% to 6,827.41, the Nasdaq dropped 1.69% to 23,195.17, and the Dow slipped 0.51% to 48,458.05. The 10-year Treasury yield rose to about 4.19%, a move that tends to pressure high-valuation growth stocks. [4]
That Friday decline wasn’t “everything is broken” risk-off. It looked more like a valuation and positioning reset inside a strong year: the S&P 500 is still up roughly 16% in 2025. [5]
But the pullback matters for a December forecast because it reveals what the market is most sensitive to right now: rates and AI profitability.
The Fed cut rates again—then signaled a likely pause
The Federal Reserve delivered a quarter-point cut that brought the policy rate to 3.50%–3.75%—but the tone was not a clean “dovish pivot.”
Recent Reuters coverage emphasizes three critical details for markets:
- The Fed signaled it would “carefully assess incoming data” before making “additional adjustments,” language that traders widely read as a pause signal. [6]
- Policymakers’ projections pointed to a slower easing path than many investors had priced in—only one cut in 2026 in the median forecast (and another in 2027), even as markets had leaned toward two cuts next year. [7]
- The vote was unusually divided (9–3), highlighting how fragile the inflation-versus-jobs debate remains inside the central bank. [8]
That mix—rate cuts delivered, but forward guidance less comforting—is exactly the kind of setup that can produce a choppy late-December tape. If the market believes the Fed is “done unless the data breaks,” then every major report carries more weight.
“Data darkness” ends next week—and markets may not like what they see
One of the most important (and unusual) December catalysts is that investors are about to get a catch-up wave of delayed economic data after a federal government shutdown postponed key releases. [9]
Reuters’ “Week Ahead” preview and Investopedia’s weekly markets calendar both frame next week as a potential inflection point:
- Jobs report (November) is due Tuesday
- CPI (November) is due Thursday
- Additional backlog reports include retail sales and other releases that should give markets a clearer read on growth and inflation heading into year-end. [10]
Two details from Reuters stand out for December positioning:
- Because of the shutdown and catch-up scheduling, there’s effectively “three months” of labor and inflation datalanding between the December and January Fed meetings. [11]
- Fed Chair Jerome Powell suggested recent payroll prints may be overstated—Reuters reported he noted payroll gains averaging about 40,000 per month since April could instead imply an average loss around 20,000 per month in the Fed’s assessment. [12]
That’s a big reason December’s forecast isn’t just “Santa rally yes/no.” The market is being asked to reprice the economy quickly, in thin liquidity, while the Fed itself is telling investors it needs clearer evidence before moving again.
Why the “AI trade” suddenly looks like December’s swing factor
The second major variable is the market’s most important engine in 2025: AI-linked megacap and infrastructure spending.
In the last few sessions, investors have reacted sharply to updates from signature AI beneficiaries:
- Reuters and the Financial Times highlighted renewed concern about how quickly AI investment pays off—especially after Oracle’s weak outlook/spending comments and Broadcom’s margin warning, which helped drag tech lower. [13]
- On Friday, Reuters reported technology fell about 2.9% (the worst-performing major S&P sector), while AI bellwethers like Nvidia were also down on the day. [14]
- On Thursday, the market still managed a record close—but it did so with rotation: Reuters described money flowing into financials/materials while tech softened. [15]
This matters for a December 2025 stock market forecast because the market’s “easy mode” this year has been: AI narrative + resilient earnings + rate cuts. If the AI narrative gets shakier, the market can still rise—but it usually requires broader participation (financials, industrials, materials, value) to carry the index.
Seasonal tailwinds are real—but they don’t remove December’s risks
It’s tempting to treat December as an automatic bullish month. Even Reuters nods to December as “traditionally a positive month for stocks.” [16]
But the same reporting also underscores why the second half of December can be jumpy:
- Investors may try to lock in year-to-date gains, especially after a strong year. [17]
- Holiday weeks bring thinner trading volumes, which can exaggerate price moves in either direction. [18]
- MarketWatch’s recent “Santa rally” analysis cautioned that the market’s cheerful seasonal narrative can distract from near-term crosscurrents, especially before the late-month window when seasonal strength is typically most discussed. [19]
So, seasonality may still help—particularly if next week’s data is “good enough.” But it’s not a shield if yields spike again or inflation surprises.
Small caps are sending a message: this rally is trying to broaden
One of the underappreciated December developments is the behavior of US small caps.
MarketWatch noted the Russell 2000 has been “absolutely roaring,” framing the move as an early arrival of the “January effect” and pointing to improving risk appetite beyond megacaps. [20]
That squares with the broader narrative from Reuters: even as tech has wobbled, the market has repeatedly shown rotation rather than collapse—a pattern typical of rallies that are maturing but still alive. [21]
For the rest of December, this is a key tell:
- If small caps and cyclicals stay firm even when tech is shaky, it suggests the market is building a “second engine.”
- If small caps roll over at the same time as tech, the market can feel suddenly narrow again—which tends to increase index-level downside risk into year-end.
Flows and positioning: investors are still buying—selectively
Fund flows also support the “risk appetite isn’t dead” reading.
Reuters reported that US equity funds saw their first weekly inflow in three weeks in the week through Dec. 10, with about $3.3 billion of net buying, while sector funds saw notable inflows (including industrials and healthcare). [22]
Flows don’t forecast day-to-day price action, but in late December they matter because they can amplify moves:
- If data is benign and yields ease, inflows can fuel a quick push higher in thin markets.
- If data shocks or yields jump, the same thin liquidity can turn modest selling into outsized declines.
Wall Street’s forward forecasts are optimistic—but not uniformly
Even though this is a December 2025 forecast, strategists’ 2026 targets influence year-end behavior because they shape the “should we stay invested?” decision.
In the past week, several widely cited calls landed in the market:
- Oppenheimer set a Street-high 8,100 year-end 2026 target for the S&P 500, based on a constructive view on earnings and the economy. [23]
- UBS projected the S&P 500 at about 7,300 by mid-2026 and 7,700 by the end of 2026, while warning volatility could rise around the next batch of jobs, CPI, and retail sales data. [24]
- On the cautious side, Bank of America has highlighted a scenario where an “AI air pocket” and consumer strain could weigh on stocks, even while acknowledging the market’s big-picture drivers. [25]
The takeaway for December isn’t “8,100 is coming soon.” It’s that the median Wall Street posture still looks constructive, which tends to keep dip-buying alive—unless the near-term data forces a sharper repricing of recession or inflation risk.
US stock market forecast for the rest of December 2025: three realistic scenarios
No single December forecast fits all outcomes because next week’s data is unusually pivotal. A practical way to frame the rest of the month is scenario-based:
1) Base case: choppy grind, with a late-month upward bias
Most consistent with the last several sessions: rotations continue, tech remains volatile, and macro prints determine whether the S&P 500 can reclaim and hold record territory.
What would support it:
- Jobs data that’s soft-but-not-cratering
- CPI that doesn’t re-ignite inflation fears
- Treasury yields that stabilize instead of surging
This is essentially “risk-on, but with speed bumps,” which matches Reuters’ framing of markets trying to interpret the Fed’s pause signal amid incomplete data. [26]
2) Bull case: delayed data clears the fog and unlocks a year-end rally
In this outcome, the backlog reports reduce uncertainty, the bond market relaxes, and rotation broadens (financials, industrials, materials, small caps) while megacap tech steadies.
What would likely accompany it:
- A friendlier rate backdrop (yields easing)
- AI worries cooling after the Oracle/Broadcom shock
- Continued inflows into equities and cyclicals
The market has already shown it can print new highs even amid tech anxiety—Thursday’s record close is proof. [27]
3) Bear case: inflation or yields surprise, and profit-taking accelerates
This is the path where the Santa-rally narrative breaks down: CPI surprises hot, the Fed’s “pause” becomes more credible, yields rise, and the market de-risks into year-end.
What would likely accompany it:
- Another leg higher in yields
- Renewed pressure on the most expensive AI-linked names
- Thin liquidity magnifying downside moves
Friday’s selloff offered a small preview of how quickly sentiment can shift when AI fears and yields move together. [28]
What to watch into year-end: the signals that matter most
If you’re tracking the US market into late December, these are the indicators most tied to the headlines and price action of the last few days:
- 10-year Treasury yield direction: rising yields have been a direct headwind for tech-heavy indexes. [29]
- Jobs and CPI (next week): delayed releases after the shutdown are central to both Fed expectations and equity multiples. [30]
- AI trade stability: updates from key AI-linked companies have been moving entire sectors, not just single stocks. [31]
- Breadth/rotation: whether gains keep spreading beyond megacaps (a key theme in Thursday’s record close session). [32]
- Fund flows: equity-fund inflows suggest investors haven’t abandoned risk—yet. [33]
Bottom line: December 2025 looks bullish—but headline-sensitive
A fair US stock market forecast for December 2025 is that conditions still lean constructive—rate cuts have supported equities, the year’s performance is strong, and strategists’ forward targets remain generally optimistic. [34]
But December’s path likely runs through a narrow gate: the delayed jobs and inflation data. If the backlog reports calm fears, the market has room to push toward (or beyond) recent highs. If they re-ignite inflation concerns or recession chatter, year-end profit-taking and thin liquidity can turn a routine pullback into a bigger move. [35]
This article is for informational purposes and is not investment advice.
References
1. www.reuters.com, 2. www.reuters.com, 3. www.reuters.com, 4. www.reuters.com, 5. www.reuters.com, 6. www.reuters.com, 7. www.reuters.com, 8. www.reuters.com, 9. www.reuters.com, 10. www.reuters.com, 11. www.reuters.com, 12. www.reuters.com, 13. www.reuters.com, 14. www.reuters.com, 15. www.reuters.com, 16. www.reuters.com, 17. www.reuters.com, 18. www.reuters.com, 19. www.marketwatch.com, 20. www.marketwatch.com, 21. www.reuters.com, 22. www.reuters.com, 23. www.reuters.com, 24. www.ubs.com, 25. www.marketwatch.com, 26. www.reuters.com, 27. www.reuters.com, 28. www.reuters.com, 29. www.reuters.com, 30. www.reuters.com, 31. www.reuters.com, 32. www.reuters.com, 33. www.reuters.com, 34. www.reuters.com, 35. www.reuters.com
