US Stock Market Faces Turbulence: Why Investors Should Expect a Bumpy Ride to Year-End

The US stock market is experiencing turbulence that could keep investors on edge until the end of the year. Despite the S&P 500 being on track for a solid performance in 2025, it has edged lower in December, defying historical trends that typically see a strong month.

Key Themes Affecting the Market

Two main themes have contributed to the swings in US equities: scrutiny over massive corporate spending on artificial intelligence (AI) and shifting expectations about further interest rate cuts by the Federal Reserve in 2026. Recent questions about a data-center project from Oracle have weighed on tech and AI-related stocks, while tame inflation data has given stocks a lift.

Economic Data and the Fed

This week's economic data has solidified expectations that the Fed will have a rate-cutting bias. The latest data likely provides a green light for the Santa Claus rally to take place this year. The Santa Claus rally has seen the S&P 500 rise an average of 1.3% over the last five trading days of the year and the first two in January since 1950.

Investor Reactions and Market Trends

Investors have digested a heavy batch of delayed economic data, including employment data that showed job growth rebounded in November but the unemployment rate stood at 4.6%, its highest level in over four years. The US consumer price index increased less than expected in the year to November, which may be tempered by distortions due to delayed data collection.

The Fed has cut interest rates at three consecutive meetings, leaving investors to parse data for insight into when the central bank might ease again in 2026. Economic reports in the coming week include third-quarter gross domestic product, durable goods orders, and consumer confidence.

AI Trade and Market Sectors

The AI trade has helped lift stocks this year, with the S&P 500 up more than 15% so far in 2025. However, AI-related worries, including when massive infrastructure spending will generate returns, have dented the high-flying tech sector. Other sectors, such as transportation, financial, and small-cap groups, have helped pick up the slack.

Remember, this is a perspective, not a prediction. Do your own research and consider your own financial goals and risk tolerance before making any investment decisions.

Key Takeaways

• The US stock market is experiencing turbulence that could keep investors on edge until the end of the year.
• The S&P 500 is on track for a solid performance in 2025, despite edging lower in December.
• Scrutiny over massive corporate spending on AI and shifting expectations about further interest rate cuts by the Federal Reserve are contributing to market swings.
• The Santa Claus rally is likely to take place this year, with the S&P 500 potentially rising an average of 1.3% over the last five trading days of the year and the first two in January.