Will the "Christmas rally" in the US stock market arrive on schedule this year?

```

With moderate inflation data supporting the Federal Reserve's policy path, the US stock market is gathering strength after recent volatility, as investors hope that the historic "Christmas rally" will put a perfect end to 2025.

Boosted by Thursday's inflation report, the S&P 500 rose 0.8%, breaking a four-day losing streak. Previously, stricter scrutiny of AI infrastructure spending and adjustments to expectations for the Fed’s pace of rate cuts in 2026 led to a weak start for US stocks in December, unsettling investors who were hoping for a traditional year-end rally.

However, the latest economic data eased concerns about a rebound in inflation, and sectors led by technology stocks quickly bounced back. Derivatives market trading showed investors buying the dip in AI and semiconductor assets. Edward Jones Senior Global Investment Strategist Angelo Kourkafas said:

This week’s economic data further solidified expectations that the Fed will maintain a bias toward rate cuts. While investors may lock in profits in the coming days, leading to some selling pressure, the latest data “has likely turned the green light on for this year’s ‘Christmas rally.’”

Meanwhile, fund flows and historical data have also provided psychological support for the bulls. Data from Goldman Sachs shows that $100 billion has flowed into US stocks over the past nine weeks, with both retail and institutional sentiment remaining positive and volatility falling to its lowest levels of the year. According to Citadel Securities, since 1928, the S&P 500 has risen in the last two weeks of December 75% of the time, with an average gain of 1.3%.

Goldman Sachs believes that unless there is a major shock, it is hard for the market to resist such overwhelming positive seasonal factors, and there is still room for the year-end rally to go higher.

Delayed data clears policy fog

This week, investors digested a batch of economic data that had been pushed back due to a 43-day federal government shutdown.

Thursday’s release of the Consumer Price Index (CPI) growth came in below expectations, greatly boosting market sentiment. In terms of nonfarm payrolls data, although November nonfarm payroll growth rebounded, the unemployment rate rose to 4.6%, its highest in more than four years.

Barings Head of Global Asset Allocation Trevor Slaven said that considering data distortions caused by the government shutdown, a big question for the market next week will be the Fed’s future policy path.

Currently, the Fed has lowered rates for three consecutive meetings, and investors are trying to read the data to find clues about when the central bank might ease policy again in 2026. As the year draws to a close, economic data reports remain dense, including third-quarter GDP, durable goods orders, and consumer confidence index releases.

Tech stocks: From skepticism to buying the dip

Although the S&P 500 has risen more than 15% in 2025, setting the stage for at least three consecutive years of 10%+ gains, the heavily weighted technology sector has not had a smooth ride recently.

This week, doubts about Oracle’s data center project temporarily dragged down tech and other AI-related stocks. Mark Luschini, Chief Investment Strategist at Janney Montgomery Scott, noted that the market is becoming more visibly skeptical about the ROI cycle for AI spending, and the tech sector’s high weighting in cap-weighted indexes has amplified market pressure.

However, investor confidence has not collapsed. After Thursday’s data was released, tech stocks rebounded quickly: Bloomberg’s tech "Magnificent Seven" index rose 2%, and the Nasdaq 100 gained 1.5%.

Derivatives market trading activity shows that traders didn’t flee but instead used tech’s pullback to increase their exposure to AI, semiconductors, and long-term technology assets. Susquehanna International Group data shows:

Traders bought large volumes of bullish call spread options linked to Nvidia, Micron Technology, and tech sector ETFs, while selling bearish put options on tech giants such as Alphabet, Nvidia, and Broadcom.

Susquehanna’s co-head of derivatives strategy Chris Murphy believes that this is a classic display of confidence, meaning investors think the decline will be shallow and temporary. Investors are using the tech pullback to increase exposure to AI, semiconductors, and long-term tech stocks, not to flee.

Fund flows and market sentiment remain positive

Beyond the rebound in tech stocks, the broader market backdrop remains constructive.

Goldman Sachs data shows that over the past nine weeks, investors have poured about $100 billion into US stocks, continuing the steady inflows seen throughout 2025. The bank’s investor sentiment indicators are now at their most optimistic levels since April.

Retail investors remain the most steadfast supporters of US stocks. Citadel Securities data shows that individual traders have been net buyers of bullish US stock options in 32 of the last 33 weeks.

Scott Rubner, Head of Equities and Equity Derivatives Strategy at Citadel Securities, wrote in a report that after a year of impressive portfolio returns and record household wealth, retail participants heading into 2026 have both the conviction and the balance sheet strength to increase their market activity.

Institutional investors are also showing a positive stance, buying options and, in recent weeks, allocating funds to sectors beyond large-cap tech stocks. Data shows that economically sensitive real estate and industrial stocks have shown the strongest buy signals for the second consecutive week.

Furthermore, with the arrival of seasonally quiet periods, volatility is fading. The S&P 500’s 10-day realized volatility has dropped to one of its lowest levels this year, and Goldman’s trading desk notes that low levels of implied volatility mean system-wide re-leveraging will gather more momentum, adding another tailwind for the year-end rally.

Risk Warning and DisclaimerThe market involves risk, and investment must be cautious. This article does not constitute personal investment advice and does not take into account the special investment objectives, financial situation, or needs of individual users. Users should consider whether any views, opinions, or conclusions in this article are suitable for their specific circumstances. Investment decisions made based on this article are at your own risk. ```