Trader Michael Pistillo dons “2026” glasses while working at the New York Stock Exchange as the opening bell rings on December 31, 2025.
The S&P 500 index dipped by 0.3% on Wednesday, yet it’s still set to wrap up a profitable year.
The overall market saw the Nasdaq Composite and the Dow Jones Industrial Average drop as well, with the latter losing 165 points (0.3%).
Even though stock prices have decreased for three sessions in a row, the decline has been gradual. The S&P 500 remains approximately 17% higher than at the beginning of the year, achieving its third straight quarter of double-digit annual increases. The Nasdaq has surged by 21%, spurred on by excitement around AI technology, while the Dow has climbed about 13%, held back a bit by its lack of tech stocks.
This marks quite a comeback from the turmoil earlier this year when the market reacted dramatically to President Trump’s tariff announcements. At one point, the S&P 500 was nearly in bear market territory, with a nearly 19% drop from its February peak, closing below 5,000 for the first time since April 2024.
“The administration has learned that markets can adapt to tariffs that are smart and gradual,” Keith Buchanan, a senior portfolio manager at Globalt Investments, noted. He expressed hope that upcoming tariff changes in 2026 would be managed in a way that supports U.S. companies’ profit margins.
Nonetheless, this recent downturn raises some concerns, especially since the final business days of the year and the first days of the new year are usually volatile, often associated with a “Santa Claus” rally that typically boosts prices.
Recent profit-taking might hint at potential volatility ahead. Some strategists surveyed by CNBC predict the S&P 500 could achieve another double-digit gain in 2026, although worries loom about stocks fluctuating throughout the year as corporate earnings catch up with rising valuations.
For the past three years, AI has been a significant force in shaping the market. The S&P 500 gained 24% in 2023 following the introduction of ChatGPT, which sparked tremendous interest in companies leveraging AI, reminiscent of the internet boom’s early days. In 2024, the index saw an additional 23% rise.
This year, the AI narrative appears more fragmented, with the bullish trend spreading into other sectors. The performance of the “Magnificent Seven” stocks has also varied. For instance, Alphabet has surged over 65% year-to-date, becoming the standout winner among large-cap stocks, whereas Amazon has seen a comparatively modest rise of over 5%.
Interestingly, other asset classes have begun to outperform those big names. Commodities, for instance, have had a particularly robust year, with gold climbing more than 64%, and silver skyrocketing by over 142%.
“The shifts we’re witnessing suggest that 2026 will diverge significantly from both 2025 and even the two prior years,” Buchanan remarked. He noted that moving forward, the market may be driven more by fundamental factors rather than solely relying on monetary policy or AI advancements.
As of the close on Tuesday, both the Dow and S&P 500 are expected to finish the month on a high note. The Dow Jones Industrial Average has gained about 1% in December, on track for an eight-month winning streak, the first since 2018. Meanwhile, the S&P 500 is also poised for a similar streak with a 0.4% rise, although the Nasdaq remained relatively steady.
