Santa Claus Rally Keeps Stocks Near Records Ahead of Fed Minutes

Thin holiday liquidity leaves record-level pricing sensitive to rates

U.S. stocks traded near record highs into the final week of 2025 as the Santa Claus rally period began and investors shifted attention from company news to macro catalysts. With only a handful of sessions left before 2026, modest swings in yields can translate quickly into index moves.

The S&P 500 has held close to peak levels after a late-December rebound, while the Nasdaq has also stayed near recent highs. Year-to-date gains remain large, with the S&P 500 up about 18% and the Nasdaq up about 22% heading into the final stretch, leaving valuations more exposed to shifts in policy expectations.

Fed minutes are the week’s key catalyst for rate-cut expectations 2026

Minutes from the Federal Reserve’s December meeting are due Tuesday, December 30, offering more detail on the decision to cut the policy rate by 25 basis points to a 3.5%–3.75% target range. The market focus is whether the discussion supports additional easing or highlights constraints around inflation and financial conditions.

If the minutes read as cautious, front-end yields can firm and pressure long-duration equities. If the debate leans toward more cuts contingent on softer activity, the same mechanism tends to support rate-sensitive stocks and keep risk appetite steady.

Jobless claims arrive just before an early close for bonds

Weekly U.S. jobless claims for the week ending December 27 are scheduled for Wednesday, December 31, and they matter because the labor market is central to the Fed’s next step. The U.S. bond market closes early that day, which can compress liquidity and amplify moves during the New York morning.

A weaker labor signal would reinforce rate-cut expectations 2026 and typically supports equities and credit. A firmer reading keeps the focus on a higher-for-longer path and can lift hedging costs into the turn of the year.

Housing and surveys set the tone for growth-sensitive sectors

Monday brings November pending home sales, a read-through for early-2026 housing demand. Tuesday adds the Case-Shiller home price index for October and the Chicago Business Barometer for December, mixing a housing-price signal with a regional manufacturing gauge.

The transmission channel is rates. Stronger housing and survey prints can push yields higher by implying demand is holding up, which can weigh on equity multiples. Weaker readings can support bonds and help the S&P 500 record highs narrative persist, as long as they do not signal a sudden drop in activity.

Holiday calendar narrows the window for repositioning

U.S. markets are closed on Thursday, January 1, for New Year’s Day, leaving fewer hours for funds to adjust exposures. That raises the role of technicals such as rebalancing flows, option positioning and tax-driven trades, especially in the most liquid index names.

This setup often produces a gap between calm spot moves and more active hedging. Short-dated volatility can rise even when prices drift, because traders buy protection around the Fed minutes December meeting and the year-end data prints.

Tech leadership still dictates index direction

With equities near peak levels, broad benchmarks remain sensitive to the largest technology names and the AI-related complex. When tech holds, weakness in smaller sectors is easier to absorb. When tech slips on higher yields, index-level downside can accelerate because fewer sessions are available to clear risk.

For investors, the practical tell is whether leadership broadens beyond a narrow set of mega-caps. A wider participation profile can keep volatility contained and support cyclicals, while narrow leadership can leave the market vulnerable to a fast pullback if rates move.

Dollar, commodities and credit follow the same rates logic

A softer dollar late in the year has been consistent with easier policy expectations, supporting precious metals alongside geopolitical hedging demand. In credit, the main risk is a year-end widening that forces de-risking into early January, particularly if Treasury yields reprice higher on the minutes.

Base case, one upside and one downside scenario for early 2026

The base case is a sideways-to-firm market with choppy intraday action, as the Fed minutes and U.S. jobless claims keep yields range-bound and positioning stays constructive. The trigger is whether equity gains hold through the first two trading days of January, a window traders watch for flow-driven confirmation.

An upside scenario is minutes that emphasize downside risks to growth plus a jobless-claims print that points to gradual cooling, pulling two-year yields lower and supporting rate-sensitive sectors. A downside scenario is minutes that stress inflation persistence alongside firm labor data, pushing front-end yields higher, lifting the dollar and widening credit spreads enough to pressure equities.