HOLIDAY SEASON
As the year draws to a close, markets appear to be finishing the year on a high note. Optimism has been high due to strong earnings, the ongoing enthusiasm for technology stocks, and a US economy that strongly suggests that further rate cuts will be on the way next year. AI-linked companies have again driven much of the gains, although more traditional industrial stocks have also performed well. The holiday season has so far been a positive one, but can a so-called Santa Claus rally be expected?
- HOLIDAY SEASON AND SANTA CLAUS RALLY
The holiday season traditionally begins in November. On the last Friday in November, “Black Friday” kicks off the Christmas spending rush, which goes on until early January. Typically, stock prices tend to rise in this period. From 2020 – 2024, on average, Apple jumped 4.7% in December, while Meta (Facebook) climbed 3.32%. The Santa Claus rally is not guaranteed, but over many years it has shown a positive bias in stock markets (rising prices). It usually describes the December 24th period until January 5th, with the S&P 500 averaging gains of over 1.5% during the period.
- STOCKS IN 2025: DESPITE CAUTION, ANOTHER STRONG YEAR FOR TECH AND AI
This year's gains in the stock markets have not scaled the heights of last year. Trade concerns and some fears over frothy valuations of AI stocks put a cap on three-figure increases. But AI-linked tech stocks have remained dominant and have outperformed other stocks. Google has continued to impress with major deals with other companies in the sector, and alongside the launch of the AI model Gemini 3, has jumped by 63% with only a week left until 2026. Apple has staged a comeback with better-than-expected iPhone 17 sales. Appetite for semiconductor, cloud computing, and AI software companies has continued amid strong consumer demand, with NVIDIA’s stock rising 35% so far this year, AMD jumping 76%, and a resurgent INTEL, ostensibly backed by the US administration’s support, surging 83%.
- INTEREST RATES: GOING DOWN, STOCK PRICES GOING UP?!
One of the key drivers of IT stock prices is monetary policy expectations. Amid trade uncertainty and shifting expectations on inflation this year, the Fed cut rates three times in 2025. Lower rates tend to favour tech stocks, which have higher valuations and benefit from cheaper capital to expand. Rates may also encourage consumer spending and boost revenues for many companies. These factors are expected to support stock price increases.
- EXPECTATIONS FOR 2026: IT STOCKS REMAIN IN FOCUS
Looking towards 2026, market expectations continue to focus on technology and IT growth. This reflects the ongoing influence of AI and cloud adoption. The reality is that many businesses are already using AI tools in the workplace, and increasingly, people are using AI-enabled software such as chatbots like ChatGPT, Claude, and others. Companies like Google, Microsoft, and Apple are expected to benefit from new product launches and accelerating AI integration. Chip stocks such as NVIDIA, AMD, and INTEL will continue to provide the architecture to power consumer and corporate demand. Expectations of Fed rate cuts next year, with additional pressure from the Trump administration to make multiple cuts, further support this sector. A promised “tariff dividend”, in the form of $2000 to most Americans, could also encourage purchases of consumer and other goods.
Conclusion
The year is concluding amid some optimism and a sense of relief after trade concerns did not derail the global economy or spark a major slowdown in growth. A Santa Claus rally isn’t guaranteed, but bearing in mind current indicators and recent reported better-than-expected online sales (Amazon) and on the high street (Walmart), the shopping season is expected to continue unabated. Therefore, there are reasons for optimism that another Santa Claus rally could take place. In 2026, global growth is largely expected to continue as most central banks ease monetary policy. While the unpredictability of the current US administration remains a factor, it has also placed AI development at the centre of its priorities.