Wall Street’s festive gamble: Can AI and Santa deliver one more rally?
The week before Christmas, Wall Street feels different. Screens glow a little brighter, volumes thin out, and every small move in a mega‑cap tech share seems to carry the weight of the entire year’s story. After a choppy start to December, Friday’s sharp rebound in the S&P 500 and Nasdaq, powered once again by artificial intelligence heavyweights, has traders wondering if the traditional “Santa rally” is finally ready to clock in. Futures this morning suggest a cautious but positive open, as investors balance festive optimism with stretched valuations and a very long list of what‑ifs for 2026.
When AI becomes the main character
By now, AI is no longer the quirky side plot; it is the main storyline in every US equity conversation. Nvidia, Oracle and the broader chip and cloud complex have repeatedly dragged the indices higher this year, and Friday was no different. A renewed bid for these names helped the S&P 500 rise around 0.9%, with the Nasdaq gaining closer to 1.3% as dip‑buyers stepped back into familiar territory.
Analysts sound both impressed and wary. One recent note on Nvidia summed it up neatly: “The ‘AI bubble’ has not burst; rather, it has matured,” arguing that demand for AI compute still “continues to outstrip supply” even as the hype cools. Others, like BNP Paribas equity analyst David O’Connor, point to “unstoppable Blackwell momentum” as proof that this cycle is more than a marketing story, even if the stock’s every tick now moves broader risk sentiment.
Under the surface, though, leadership is not as one‑sided as the headlines suggest. Technology, healthcare and industrials have been pulling their weight, while more defensive areas such as utilities and consumer staples lag – a classic late‑year “risk‑on” pattern that leaves cautious investors slightly uncomfortable. As one strategist at Principal Asset Management put it, the AI rally is “still in its early stages”, but the market will now “reward companies that can demonstrate actual utility and revenue from AI, rather than just the potential for it.”
The fragile magic of the Santa rally
Every December, the same seasonal statistic gets dusted off: since 1950, the S&P 500 has on average gained about 1.3% over the last five trading days of the year and the first two of January, rising roughly three‑quarters of the time. Jeffrey Hirsch, editor‑in‑chief of the Stock Trader’s Almanac, recently noted that the setup still “looks like [the Santa Claus rally] is set up and we can make another high by the end of the year,” echoing his father Yale Hirsch’s famous warning: “If Santa should fail to call, bears may come to Broad and Wall.”
This year, that seasonal magic feels more fragile than usual. The S&P 500 is already up more than 15% in 2025, on track for a third straight year of double‑digit returns, yet the index has actually edged lower so far in December as investors debate whether AI winners can keep justifying their multiples. Angelo Kourkafas, senior global investment strategist at Edward Jones, argues that recent data “likely provide a green light for the Santa Claus rally to take place this year,” but also warns that profit‑taking after such a strong run could easily stir pockets of selling.
Add in a holiday‑shortened week, thinner liquidity and the after‑effects of a huge options expiry, and even small headlines can move prices far more than they deserve. For long‑term investors, the message from many strategists is simple: treat any late‑December surge less as a miracle and more as an opportunity to rebalance, trimming where AI euphoria has run hottest while topping up quality names that were left behind. On Wall Street this week, the mood is hopeful, but the smart money knows that Santa rallies are best enjoyed with one eye firmly on the exit.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs
The week before Christmas, Wall Street feels different. Screens glow a little brighter, volumes thin out, and every small move in a mega‑cap tech share seems to carry the weight of the entire year’s story. After a choppy start to December, Friday’s sharp rebound in the S&P 500 and Nasdaq, powered once again by artificial intelligence heavyweights, has traders wondering if the traditional “Santa rally” is finally ready to clock in. Futures this morning suggest a cautious but positive open, as investors balance festive optimism with stretched valuations and a very long list of what‑ifs for 2026.
When AI becomes the main character
By now, AI is no longer the quirky side plot; it is the main storyline in every US equity conversation. Nvidia, Oracle and the broader chip and cloud complex have repeatedly dragged the indices higher this year, and Friday was no different. A renewed bid for these names helped the S&P 500 rise around 0.9%, with the Nasdaq gaining closer to 1.3% as dip‑buyers stepped back into familiar territory.
Analysts sound both impressed and wary. One recent note on Nvidia summed it up neatly: “The ‘AI bubble’ has not burst; rather, it has matured,” arguing that demand for AI compute still “continues to outstrip supply” even as the hype cools. Others, like BNP Paribas equity analyst David O’Connor, point to “unstoppable Blackwell momentum” as proof that this cycle is more than a marketing story, even if the stock’s every tick now moves broader risk sentiment.
Under the surface, though, leadership is not as one‑sided as the headlines suggest. Technology, healthcare and industrials have been pulling their weight, while more defensive areas such as utilities and consumer staples lag – a classic late‑year “risk‑on” pattern that leaves cautious investors slightly uncomfortable. As one strategist at Principal Asset Management put it, the AI rally is “still in its early stages”, but the market will now “reward companies that can demonstrate actual utility and revenue from AI, rather than just the potential for it.”
The fragile magic of the Santa rally
Every December, the same seasonal statistic gets dusted off: since 1950, the S&P 500 has on average gained about 1.3% over the last five trading days of the year and the first two of January, rising roughly three‑quarters of the time. Jeffrey Hirsch, editor‑in‑chief of the Stock Trader’s Almanac, recently noted that the setup still “looks like [the Santa Claus rally] is set up and we can make another high by the end of the year,” echoing his father Yale Hirsch’s famous warning: “If Santa should fail to call, bears may come to Broad and Wall.”
This year, that seasonal magic feels more fragile than usual. The S&P 500 is already up more than 15% in 2025, on track for a third straight year of double‑digit returns, yet the index has actually edged lower so far in December as investors debate whether AI winners can keep justifying their multiples. Angelo Kourkafas, senior global investment strategist at Edward Jones, argues that recent data “likely provide a green light for the Santa Claus rally to take place this year,” but also warns that profit‑taking after such a strong run could easily stir pockets of selling.
Add in a holiday‑shortened week, thinner liquidity and the after‑effects of a huge options expiry, and even small headlines can move prices far more than they deserve. For long‑term investors, the message from many strategists is simple: treat any late‑December surge less as a miracle and more as an opportunity to rebalance, trimming where AI euphoria has run hottest while topping up quality names that were left behind. On Wall Street this week, the mood is hopeful, but the smart money knows that Santa rallies are best enjoyed with one eye firmly on the exit.
Disclaimer: The views and recommendations made above are those of individual analysts or brokerage companies, and not of Winvesta. We advise investors to check with certified experts before making any investment decisions.
Ready to earn on every trade?
Invest in 11,000+ US stocks & ETFs