The Santa Claus rally is usually one of Wall Street’s favorite holiday traditions. Stocks tend to grind higher after Thanksgiving, volatility fades, and December often delivers one of the strongest months of the year.
This year, strategists say, Santa may not show up.
“None [of the months this year] have behaved the way they have seasonally,” Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets, told Yahoo Finance.
And there are plenty of reasons why. The year has offered reminder after reminder that this isn’t a normal market cycle: The DeepSeek meltdown in February, President Trump’s surprise tariff announcement in April, and months of hand-wringing over AI valuations created a roller-coaster ride for investors that pushed stocks to record highs before volatility resurfaced again in recent weeks.
This has been a year when the traditional playbook hasn’t worked because the rules of the game are changing in real time. AI has introduced a level of disruption and uncertainty that strategists say is fundamentally different from anything in the past decade.
That means volatility could be a bigger part of the story this December.
“I don’t know if we’ll get that Santa rally, but we’ll definitely get perhaps another volatility pothole or rally in volatility,” Silverman said, noting that there’s been more bearish sentiment in the options market as investors buy more downside protection instead of leaning on seasonal strength in equities.
Omar Aguilar, CEO and chief investment officer of Schwab Asset Management, sees similar risks playing out beneath the surface.
“We see a lot of dispersion and a lot of discrepancy across many things,” Aguilar told Yahoo Finance on Monday, pointing to the uneven way new macro data has been arriving post-government shutdown and the early signs of leadership rotation across sectors.
“We have seen parts of the beginning of the unwinding of that momentum trade,” he said.
That’s happening even as megacap tech has swung sharply in recent weeks, fueling both the market’s rallies and its pullbacks. As a result, the setup for a classic December advance isn’t as clear as it usually is.
“The opportunities for a catalyst that will propel the market up don’t seem to be that strong this time,” Aguilar said.
And while a potential Fed rate cut could swing sentiment, he said even that isn’t guaranteed: “Maybe the Fed cutting rates will put that extra piece to just get the market going. But it’s still unclear that that will happen in December.”
Rate-cut expectations have swung dramatically in recent months, and stocks have tended to move in lockstep with the shifting Fed outlook.
Currently, markets are pricing in an 83% chance that the central bank will cut interest rates by the end of its December meeting, up from a roughly 30% chance seen just last week, according to the CME FedWatch Tool.
Aguilar said the recent doubling of rate-cut expectations could provide a meaningful catalyst to stocks, even if the outcome isn’t certain just yet. He added that the bigger driver over time will be the return on AI investments and how quickly those gains start to show up in the economy.
And as the Fed debate plays out, Wall Street is already shifting to the longer-term outlook. Many strategists still see stocks marching higher over the next 12 to 18 months, with some targets as high as 8,000.
Corporate results and strong AI fundamentals have helped anchor that outlook. S&P 500 companies grew profits by 13.4% in the third quarter, according to FactSet, with Big Tech driving much of the expansion. That marked the fourth straight quarter of double-digit gains and was above the 10-year average of 9.5%, although still shy of the five-year average of 14.9%.
That keeps the longer-term story intact even if the near-term path is bumpier. And for investors trying to navigate the uncertainty (and increased volatility), Aguilar said the message is simple: “Rebalance. This is the time.”
Allie Canal is a Senior Reporter at Yahoo Finance. Follow her on X @allie_canal, LinkedIn, and email her at alexandra.canal@yahoofinance.com.
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