The S&P 500 stayed steady after Thursday’s session and saw gains after Friday’s opening. Brief dips allowed for quick profits. The Nasdaq showed some weakening, but the S&P 500 was able to reach higher intraday highs. After breaking through the 6,850 mark, it consolidated below 6,889 before eventually moving past it.

Is a Santa Claus Rally Coming?

Unlike the Nasdaq, biotech, or small-cap stocks, semiconductor and discretionary stocks were sold off towards the end of the trading day. This may indicate that the “Santa Claus rally” is beginning. Notably, NVIDIA rose nearly 4% in just one day. Market volatility has dropped, and the losses from Wednesday were completely regained. At the same time, the yen weakened as the market changed on Friday. A recent inflation report showed signs of easing price pressures, although one month of data usually doesn’t change what the Federal Reserve does. XRP rebounded, and ETFs experienced their highest inflow since December 8, signaling growing interest from institutions. FXStreet offers financial information for informational purposes and acknowledges that it comes with risks. The market analysis reflects the author’s views, not those of FXStreet or its affiliates. The market has effectively handled recent selling pressures, with a decrease in volatility and the complete recovery from Wednesday’s sharp decline. This suggests that we might be entering the initial stages of a Santa Claus rally. Historical data indicates that the final week of the year has seen stock gains over 75% of the time since 1950, which is a noteworthy seasonal trend. Market leadership seems to be expanding beyond just the big names from Nasdaq, as small caps and biotech showed strength towards the end of last week. While major tech stocks like NVDA are still strong, this shift suggests a healthier market overall. Therefore, we may want to focus on call options for broader market ETFs like SPY or IWM, rather than only looking at the QQQ.

Current Market Environment Insights

The CBOE Volatility Index (VIX) recently dipped just below 13, making option premiums relatively low. This situation is ideal for buying call options or using bull call spreads to take advantage of potential gains over the next two shortened trading weeks. A similar VIX drop occurred in late 2023, right before the year’s final rally began. We are entering the “window dressing” period, where fund managers add winning stocks from 2025 to their portfolios to demonstrate strong year-end holdings. This can often boost momentum stocks that have thrived throughout the year. NVDA’s recent 4% daily increase is a perfect example of this in action. The market has managed to ignore potential challenges, such as the Bank of Japan’s recent policy talks, which didn’t strengthen the yen or dampen risk appetite. Additionally, the November 2025 CPI report, showing inflation cooling to a 2.9% annual rate, has reassured the market that the Federal Reserve is likely done tweaking its policies. This environment creates a clear path for stocks to rise as we approach the new year. Create your live VT Markets account and start trading now.

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