Stock market prediction December 2025: Santa Claus rally 2025 prediction: How AI, Fed cuts, and tech stock volatility are shaking Wall Street
Santa Claus Rally May Not Happen This Year: Why 2025 Has Defied Seasonal Market Patterns
Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, pointed out that “None [of the months this year] have behaved the way they have seasonally,” noting that 2025 has already defied traditional market patterns, as per a Yahoo Finance report.
AI Stocks and Market Volatility: How Tech Is Shaking Wall Street
The year has been full of surprises. From the DeepSeek meltdown in February to US president Trump’s unexpected tariff announcement in April, and months of concern over AI stock valuations, investors have experienced a roller-coaster ride. Stocks reached record highs, only to see volatility return in recent weeks.
According to the Yahoo Finance report, AI has caused a level of disruption and uncertainty that strategists say is fundamentally different from anything in the past decade.
Options Market Signals Bearish Sentiment Ahead of Year-End
Silverman explained that volatility could play a larger role this December, saying, “I don’t know if we’ll get that Santa rally, but we’ll definitely get perhaps another volatility pothole or rally in volatility,” pointing to growing bearish sentiment in the options market, where investors are increasingly buying downside protection instead of relying on seasonal strength, as per the Yahoo Finance report.
Omar Aguilar, CEO and chief investment officer of Schwab Asset Management, echoed the caution. He said, “We see a lot of dispersion and a lot of discrepancy across many things,” citing uneven macroeconomic data following the government shutdown and early signs of sector rotation, as quoted in the report.
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Megacap Tech Swings Drive Market Rallies and Pullbacks
Aguilar noted that parts of the momentum-driven trades that fueled rallies earlier in the year are beginning to unwind. Megacap tech stocks, which have swung sharply in recent weeks, have contributed to both gains and pullbacks, making the typical December advance less certain.
Aguilar said, “The opportunities for a catalyst that will propel the market up don’t seem to be that strong this time,” as quoted by Yahoo Finance.
Fed Rate Cut Could Influence December Market Moves
Even a potential Federal Reserve rate cut, often a boost for markets, is not guaranteed to spark a rally. While markets are now pricing in an 83% chance of a 25-basis-point cut by the end of December, up from about 30% last week—its impact remains uncertain, Aguilar said.
S&P 500 and Long-Term Stock Outlook Remain Positive Despite Volatility
He added that the bigger long-term driver will be how quickly AI investments translate into economic gains. Despite short-term volatility, many strategists still see stocks moving higher over the next 12 to 18 months, with some S&P 500 targets reaching as high as 8,000.
Strong Corporate Earnings Support Market Optimism
Strong corporate results and continued growth in Big Tech help underpin this outlook. S&P 500 companies reported a 13.4% profit growth in the third quarter, marking the fourth consecutive quarter of double-digit gains and outpacing the 10-year average of 9.5%, though slightly below the five-year average of 14.9%.
How to Prepare for an Unpredictable Year-End Market
For investors facing this uncertainty, Aguilar’s advice is straightforward: “Rebalance. This is the time,” as quoted by Yahoo Finance.
FAQs
Will the Santa Claus rally happen this December?
Experts say it’s unlikely due to unusual 2025 market conditions and high volatility.
How is AI affecting the stock market?
AI has introduced disruption and uncertainty that strategists say is unlike anything in the past decade.
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