Christmas is fast approaching, but Wall Street isn’t feeling the holiday spirit heading into next week. The S&P 500 and Nasdaq Composite have fallen this month, indicating that stock prices are unusually weak. December has historically been one of the strongest months for stocks, with both benchmarks up more than 1% on average, according to data from Stock Traders Almanac. The decline put the S&P 500 on track for its first gain in seven months. In addition, as BTIG Chief Market Technologist Jonathan Krinsky noted, the index has struggled to break above its 50-day moving average. That suggests Santa Claus may leave a lump of coal on Wall Street this year. “There are a number of concerns that we think could hinder a year-end rally,” said Justin Bergner, portfolio manager at Gabelli Funds. “Maybe it’s limited to the hectic period at the end of the year, or maybe just customer churn at the end of the year.” Challenges for the stock market Among the challenges the stock market has to overcome are troubling signals in the bond market, the portfolio manager warned. If the yield curve continues to tighten, not just in the U.S. but around the world, more dollars could end up in assets other than equities. In particular, the yield on Japanese long-term government bonds has nearly doubled since the beginning of the year, and has recently attracted the attention of investors. There are other reasons to be concerned about the long end of the yield curve. The fact that National Economic Council Chairman Kevin Hassett is likely to become the next Federal Reserve chairman could worry investors who worry that the aggressive rate cuts that Mr. Hassett has touted could worsen inflation and cause long-term bond yields to rise. “The bond market and its signals are very important for the economy and the stock market right now,” Bergner said. “And you need a yield that’s not too hot and not too cold, and you need a spread that’s not too hot and not too cold. And we have those at the moment.” And then there’s another fear. A Supreme Court ruling on the tariffs is pending that could disrupt markets if the tariffs are deemed illegal. Foamy Valuations And given the foamy nature of AI valuations, there continues to be concern that the market is overvalued. All these concerns could mean the stock market struggles to cross the finish line in a positive mood during the final part of the year. Only the Dow Jones Industrial Average rose 0.9% in December, its fastest pace of increase in eight months. The Nasdaq Composite Index, which has a high proportion of tech stocks, is the laggard. The potential changes will impact investment as more investors move into other sectors that will benefit next year. For example, industries can benefit from increased data centers. Alternatively, financial institutions can profit from the spread between the short and long ends of the yield curve. “I think we will continue to support further rotations from growth stocks to value stocks next year,” Bergner said. Is Santa Claus coming? Investors are still hoping for a visit from Santa Claus before 2025 ends. The Santa Claus Rally period starts next week. A term coined by Yale Hirsch of the Stock Traders Almanac in 1972, the typical year-end bull market occurs over the last five business days of the year and the first two business days of the next; since 1950, the S&P 500 index has risen an average of 1.3% during those seven days alone. However, if recent trading trends hold, the market could instead remain volatile until the end of the year. Week Ahead Calendar All Time (ET). Monday, December 22nd, Tuesday, December 23rd Real GDP (3rd quarter first value) GDP prices (3rd quarter first value) Industrial production (October) Durable goods (October) Industrial production (November) Wednesday, December 24th NYSE closes after 1pm Thursday, December 25th NYSE is closed for Christmas. Friday, Dec. 26 — CNBC’s Fred Imbert contributed to this report.
