“We now find ourselves in the middle of this ‘Goldilocks’ zone, where economic health supports earnings growth while remaining weak enough to justify potential Fed rate cuts,” said Mark Hackett at Nationwide. “December continues the seasonal tailwind, historically delivering the second-best performance behind November. Other technical tailwinds for the market include financial conditions, sentiment, momentum, and breadth.”

To Sam Stovall at CFRA, after the big November gains, investors still have much to look forward to.

Since World War II, he says the S&P 500 returns in December recorded: 1) the second highest average monthly return 2) the greatest frequency of advance and 3) the lowest standard deviation of returns, which during election years has been nearly 40% below the average for the 11 other months of the year.

“The trends in the equity market remain constructive,” said Craig Johnson at Piper Sandler. “We expect a continued broadening into SMID-caps, which should be a rising tide that lifts all boats.”

December seasonality is generally bullish, but there’s precedent for a pullback when the market is already up big through November of election years, according to Bespoke Investment Group.

“As the year winds down, investors should be thankful for the bounty of stock returns seen over the last two years. However, we believe the road ahead could look more challenging than most investors appear willing to recognize at the moment,” said Anthony Saglimbene at Ameriprise. “That said, we also believe the outlook for next year remains favorable despite the known risks, and stocks could grind higher if fundamental conditions stay on track.”

A more-selective stock approach, a realistic assessment of potential fiscal and monetary policy headwinds or tailwinds, and a well-balanced investment strategy could be the keys to navigating what is very likely to be an eventful 2025, he noted.

Seasonal trends in December favor equities in general, but heading into year-end/2025, it’s worth noting that positioning and sentiment are pushing toward extremes, while charts remain overbought against negative divergences in momentum, said Dan Wantrobski at Janney Montgomery Scott.

“The markets are priced to near-perfection, in our opinion, and this still renders them vulnerable to pullbacks as we move toward the first quarter of the new year,” he said. “Our outlook is for a correction within the magnitude of 10% to 15% to strike at some point during the first half of next year.”

Ed Clissold at Ned Davis Research says that when the S&P 500 has notched at least 50 record highs in a year, the next year the index has risen only two out of seven times, with a median loss of 6.2%.

“The fact that there have not been any breadth thrusts, or an extremely high percentage of stocks rallying together, since the election” suggests that the rally is not as broad as it was earlier in the year, he said. “Continued narrowing would set the stock market up for a tougher 2025.”

At Miller Tabak, Matt Maley says that there are indeed concerns about the level of euphoria in the marketplace as many sentiment indicators are reaching extreme levels.

“However, most investors seem to be thinking that this is not something to worry about until next year,” Maley noted. “As you might imagine, this kind of complacency tells us that a further rally into the end of the year is not a lock, but until we see signs that the market is actually starting to roll back over, it’s hard to raise any warning flags right now.”

Following a significant surge in volatility over the summer, Wall Street’s “fear gauge” — the VIX — has dropped below 14. The previous regime shift in expected volatility from above 20 to below 14 occurred in the fall of 2023 — leading to a 10% gain in the S&P 500 over the subsequent three months, according to Dean Christians at SentimenTrader.

“Whenever the VIX cycled from above 20 to below 14, the S&P 500 displayed excellent returns and consistency over medium and long-term horizons,” he said. “That was especially the case a year later, as the world’s most benchmarked index rose in all but one instance and exhibited significance compared to random returns over the study period.”

Corporate Highlights:

• Intel Corp. Chief Executive Officer Pat Gelsinger was forced out after the board lost confidence in his plans to turn around the iconic chipmaker, adding to turmoil at one of the pioneers of the technology industry.

• Super Micro Computer Inc. said an independent review of its business found no evidence of misconduct but recommended that the server maker appoint new top financial and legal leadership.

• MicroStrategy Inc. sold 3.7 million shares over the past week and used the proceeds to buy another $1.5 billion worth of Bitcoin, the fourth consecutive weekly purchase announced by the crypto hedge fund proxy.

• Roughly 66,000 Volkswagen AG workers across Germany abandoned their posts on Monday, the first wave of temporary walkouts triggered by a stalemate over how to slash costs at the carmaker’s namesake brand.

• Stellantis NV Chief Executive Officer Carlos Tavares’s surprise departure leaves the maker of Jeep SUVs and Peugeot cars without clear leadership at a time of significant upheaval in the industry.

Key events this week:

• Fed’s Adriana Kugler and Austan Goolsbee speak, Tuesday

• Eurozone S&P Global Eurozone Services PMI, PPI, Wednesday

• US factory orders, US durable goods, Wednesday

• Fed’s Jerome Powell and Alberto Musalem speak, Wednesday

• Fed’s Beige Book, Wednesday

• Eurozone retail sales, Thursday

• US initial jobless claims, Thursday

• Eurozone GDP, Friday

• US jobs report, consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.2% as of 4 p.m. New York time

• The Nasdaq 100 rose 1.1%

• The Dow Jones Industrial Average fell 0.3%

• The MSCI World Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index rose 0.5%

• The euro fell 0.7% to $1.0499

• The British pound fell 0.6% to $1.2653

• The Japanese yen rose 0.1% to 149.55 per dollar

Cryptocurrencies

• Bitcoin fell 2.2% to $95,657.76

• Ether fell 2.5% to $3,615.53

Bonds

• The yield on 10-year Treasuries advanced two basis points to 4.19%

• Germany’s 10-year yield declined five basis points to 2.03%

• Britain’s 10-year yield declined three basis points to 4.21%

Commodities

• West Texas Intermediate crude was little changed

• Spot gold fell 0.2% to $2,637.24 an ounce

This story was produced with the assistance of Bloomberg Automation.

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