Wall Street’s Year-End Buying Drives Stocks Higher: Markets Wrap

Bloomberg

(Bloomberg) — The holiday-shortened week started with gains in stocks amid a broad advance that saw a continuation of the bullish momentum on Wall Street. Oil and gold rallied as the dollar fell.

Equities erased their December losses, with the S&P 500 set for an eighth straight up month – the longest winning run since 2018. About 400 of its shares rose Monday as the gauge approached a record. Tesla Inc. and Nvidia Corp. led megacaps higher. A gauge of smaller firms climbed over 1%.

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Photographer: Michael Nagle/Bloomberg

Despite bouts of volatility and concerns about the AI trade, tech has led the market to the upside this year, and it will probably be the difference between a positive and negative December, said Chris Larkin at E*Trade from Morgan Stanley.

“If a Santa Claus rally does kick in this year, St. Nick’s gift bag will likely need to be full of positive tech sentiment,” he noted.

It’s been a strong year for stocks and the big question is whether investors will carry that positive mood into 2026.

Positioning in equities is rising and fund managers are maintaining record low levels of cash. Their expectations of a further rally are outweighing concerns over rich valuations. The Federal Reserve path is also being closely watched, with two rate cuts priced for next year.

Fed Governor Stephen Miran told Bloomberg Television the central bank risks sparking a recession unless it continues lowering rates next year.

The S&P 500 hovered near 6,875. The yield on 10-year Treasuries rose two basis points to 4.17%. The dollar halted a three-day advance.

Oil rallied while gold and silver jumped to all-time highs amid geopolitical tensions.

“Everything is shaping up for a festive end to the year,” said Mark Hackett at Nationwide. “This week is being driven by technical tailwinds, a bit of stimulus optimism, and self-fulfilling prophecy, all of which are setting up a strong year-end and a solid start to next year.”

Hackett noted that the last two weeks of the year are typically the best on the calendar since 1950.

The so-called Santa Claus rally, which includes the last five trading days of December and the first two of January, has been positive roughly 80% of the time, by an average of 1.6% since 1928, he added.

“When this pattern is heavily discussed, it can become a bit of a self-fulfilling prophecy,” Hackett said. “An important caveat, however, is the consistent theme of the past five years that historical patterns have provided little direction, with last year delivering a negative return.”

Yet Hackett said that market action is encouraging, including healthy breadth, shifting leadership, and greater discernment by investors around valuations.

“The trend is our friend, 2026 looks to have a strong start, and a potential Santa Claus rally is back on the table, which would leave us ending the year at new highs,” said Louis Navellier at Navellier & Associates.

Buoyed by tech, the long-term valuation ratio of the S&P 500 is now at an all-time high. This metric has exceeded previous peaks that preceded major drawdowns, such as in the summer of 2000 before the dotcom crash, or in January 2022 when the market started to price a surge in interest rates.

“While 2025 was a volatile year with April’s tariff-driven correction, we don’t think we’re out of the woods when it comes to volatility for 2026,” said Clark Bellin at Bellwether Wealth.

While Bellin expects the tech sector to continue its corrective phase, he bets on a bottom sometime in the next few months. He also sees the Fed refraining from rate cuts until there’s a new chair mid-year, but says stocks can move higher during this time even without additional rate cuts.

Equity investor sentiment was bullish for a third straight week, although the gap over more pessimistic views has narrowed slightly, according to Deutsche Bank AG strategists.

The team including Parag Thatte said aggregate equity positioning declined last week, but remains modestly overweight.

Meantime, Goldman Sachs Group Inc. strategists led by Ben Snider noted the bank’s baseline macro outlook is “supportive for small-cap upside in early 2026.”

“We do not believe markets are fully pricing the likely strength of the US economy next year, and small-caps typically outperform during cyclical rallies,” they wrote.

Sell-side strategists across major firms have issued year-end targets for the S&P 500 that are clustered the tightest in almost a decade. With the highest forecast from Oppenheimer & Co. at 8,100 and the lowest from Stifel Nicolaus & Co. at 7,000, the gap in their annual outlook is just 16%.

Such lockstep views are generally considered a contrarian signal — when everyone’s leaning the same way, the imbalance often rights itself. They also come at a time when market risks are visible. Still, strategists on average see more gains for stocks in 2026, even after three straight years of double-digit returns.

The not insignificant amount of good news already priced in includes: an accommodative Fed that will cut rates at least once, if not twice; S&P 500 earnings to grow by about 14%; and a fiscal bump from the recently passed tax law, noted Steve Sosnick at Interactive Brokers.

“It seems like folly to think that these would not benefit stocks,” he said. “One must consider whether simply meeting those expectations will be sufficient. If not, then we could see disappointment even amidst a good investment climate.”

BofA’s Moynihan Says AI’s Economic Benefit Is ‘Kicking In More’

“Can the market hold up if AI enthusiasm and a dovish Fed aren’t helping it?” said Tom Essaye at The Sevens Report. “The answer is yes, but only as long as economic growth stays solid.”

Essaye noted that there was a data deluge last week, and the net result was that economic data and inflation remain “Goldilocks enough to help support stocks.”

An S&P 500 valuation metric that adds in consumer sentiment suggests stocks are better positioned for gains next year than a more conventional price-earning multiple measure might indicate, according to veteran investment strategist Jim Paulsen.

He says that both price-earnings ratios and consumer confidence are “abnormal,” with today’s S&P 500 price-earnings multiple higher than 94% of the time since 1960, while consumer sentiment is at its first percentile since then. The unusually-high PE multiple might be alarming if it weren’t for the accompanying exceptionally low sentiment, he says, writing that “until the Emotion-Adjusted PE rises to a concerning level, investors may be best served by remaining bullish.”

WATCH: Fed Governor Stephen Miran says the central bank risks sparking a recession without more rate cuts.Source: Bloomberg

US PREVIEW: Third-Quarter GDP to Prove Resilient Despite Tariffs

“Economic data will start to hit the wires tomorrow, but for now, traders are taking their cue from the general sense amongst participants that there’s little standing in the way for a Santa Claus rally to manifest,” said Jose Torres at Interactive Brokers.

In the run-up to Tuesday’s reading on the economy, Bloomberg Economics estimates the US likely grew more than 3% in the third quarter, supported by robust consumer spending and modest investment gains — defying headwinds from tariff-related uncertainty.

“The incoming economic data is second-tier at best, a fact that further reinforces the notion that rates will stay in an all-too-familiar territory as 2026 quickly approaches,” said Ian Lyngen at BMO Capital Markets.

The past week featured two influential economic releases for Fed policy: employment and inflation, remarked Magdalena Ocampo at Principal Asset Management.

“Taken together, the latest economic readings are likely to give doves in the Fed the upper hand, though uncertainty remains with one more inflation and employment report due before the Fed’s next meeting in January 2026,” she said.

For now, she expects two rate cuts next year, likely in the first half, and, provided unemployment doesn’t spiral, Ocampo says a resilient economy, cooling inflation and easier policy should be supportive for risk assets in the year ahead.

WATCH: Bank of America CEO Brian Moynihan on the US economy.Source: Bloomberg

Corporate Highlights:

Alphabet Inc. has agreed to buy clean energy developer Intersect Power LLC for $4.75 billion in cash, plus existing debt, marking one of the largest deals by the tech giant to dramatically expand its data center footprint for AI.

Nvidia Corp. has told Chinese clients it aims to ship its second-most powerful AI chips to China by mid-February, Reuters reported, citing people familiar with the matter.

Meta Platforms Inc.’s Threads will launch podcast previews, or the ability to upload snippets of shows that play directly in user feeds, as part of a broader effort to encourage podcasters and their fans to spend more time on the social network, according to a person familiar with the plans.

OpenAI has squeezed better margins out of its paid products this year, as it races to maintain its pole position in artificial intelligence, according to a report in The Information.

Target Corp., Whole Foods Market and Walmart Inc. will be added as defendants in lawsuits against baby formula maker ByHeart for selling a product potentially contaminated with spores that cause infant botulism.

Netflix Inc. refinanced part of a $59 billion bridge loan with cheaper and longer-term debt, bolstering the financial package underpinning its bid for Warner Bros. Discovery Inc.

Larry Ellison is throwing his personal fortune behind Paramount Skydance Corp.’s bid for Warner Bros. Discovery Inc., raising the stakes in a fiercely contested battle with Netflix Inc.

The US is suspending leases for all five wind farms under construction off the East Coast in the latest blow to a sector that’s been targeted repeatedly by the Trump administration as part of its broader attack on clean energy.

JPMorgan Chase & Co. is considering offering cryptocurrency trading to its institutional clients, as large banks around the world deepen their involvement in the asset class.

Michael Saylor’s Strategy Inc. bolstered its cash reserve to $2.19 billion and paused purchases of Bitcoin over the past week as the largest digital asset treasury company appears to be settling in for a long crypto winter.

Coinbase Global Inc. announced Monday that it will acquire a derivatives clearinghouse, The Clearing Company, to boost its entry into the growing prediction markets business.

Wells Fargo & Co.’s global-markets business is expanding into options clearing, a capital intensive and operationally arduous corner of finance dominated by Bank of America Corp. and Goldman Sachs Group Inc.

Uber Technologies Inc. and Lyft Inc. are each teaming up with Baidu Inc. to trial driverless taxis in the UK, as ride-sharing companies race to deploy autonomous services around the world.

Nelson Peltz’s Trian Fund Management and General Catalyst agreed to buy Janus Henderson Group Plc in a deal that values the asset manager at about $7.4 billion.

A group of private equity firms led by Permira and Warburg Pincus has agreed to acquire Clearwater Analytics Holdings Inc. in a deal valuing the investment and accounting software maker at $8.4 billion including debt.

A Silicon Valley-focused banking startup backed by Palantir Technologies Inc. co-founder Peter Thiel is expected to raise $350 million in a funding round that would more than double its valuation.

Cintas Corp. proposed a renewed takeover bid of UniFirst Corp. worth about $3.96 billion in equity in another attempt to buy out the rival uniform maker.

Wingtech Technology Co. Chairwoman Ruby Yang warned that global chip supplies remain at risk unless the Chinese company’s control over Dutch chipmaker Nexperia BV is restored.

Telecom Italia SpA’s board approved a proposal to convert the company’s savings shares into ordinary stock and to reduce its share capital, a long-delayed change that would simplify its capital structure.

Telefonica SA will book a cost of €2.5 billion ($2.9 billion) to pay for the exit of about 5,500 employees as part of a sweeping cost-reduction plan.

Roche Holding AG Chief Executive Thomas Schinecker said the new US drug deal signed last week could raise prices for some medicines in Switzerland.

Harbour Energy Plc agreed to acquire LLOG Exploration Co. for $3.2 billion, marking the UK company’s entry into the deepwater US Gulf of Mexico.

JAB Insurance has agreed to buy the UK life and pensions business of Utmost Group, the latest entry into the booming risk-transfer market for British retirement plans.

China Vanke Co., once the country’s biggest developer before it succumbed to an unprecedented property crisis, won last-minute support from creditors to extend a bond grace period in a reprieve that helps it avoid default, at least for now.

Nippon Life Insurance Co. is studying further acquisition opportunities abroad after spending more than $12 billion on a string of deals a year ago, the company’s top executive said.

Cathay Pacific Airways Ltd. expects its 2025 net income to outpace the previous year’s, the company said in a filing Monday, putting it on track to post its first consecutive annual profit growth in a decade.

WATCH: Gold hits all-time highs amid geopolitical tensions.Source: Bloomberg

Some of the main moves in markets:

Stocks

The S&P 500 rose 0.6% as of 3 p.m. New York time

The Nasdaq 100 rose 0.4%

The Dow Jones Industrial Average rose 0.5%

The MSCI World Index rose 0.6%

Bloomberg Magnificent 7 Total Return Index rose 0.6%

The Russell 2000 Index rose 1.2%

S&P 500 Equal Weighted Index rose 0.7%

Currencies

The Bloomberg Dollar Spot Index fell 0.4%

The euro rose 0.4% to $1.1754

The British pound rose 0.6% to $1.3455

The Japanese yen rose 0.5% to 156.94 per dollar

Cryptocurrencies

Bitcoin was little changed at $88,109.68

Ether rose 0.2% to $2,980.25

Bonds

The yield on 10-year Treasuries advanced two basis points to 4.17%

Germany’s 10-year yield was little changed at 2.90%

Britain’s 10-year yield advanced one basis point to 4.54%

The yield on 2-year Treasuries advanced three basis points to 3.51%

The yield on 30-year Treasuries advanced two basis points to 4.84%

Commodities

West Texas Intermediate crude rose 2.7% to $58.05 a barrel

Spot gold rose 2.2% to $4,432.84 an ounce

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