The stock market's vaunted Santa Claus rally is off to a shaky start. For the second consecutive session, major indexes closed lower on Monday, with technology stocks bearing the brunt of selling pressure as investors locked in gains from a strong 2025.

The S&P 500 fell 0.35% to 6,905.74, while the tech-heavy Nasdaq Composite dropped 0.5% to 23,474.35. The Dow Jones Industrial Average shed 249 points, or 0.51%, extending losses from last week's choppy trading.

Tech Leaders Under Pressure

The usual suspects drove Monday's decline. Nvidia, which has been 2025's poster child for AI enthusiasm, slipped more than 1%. Tesla tumbled over 3%, extending a recent pullback as investors question whether the electric vehicle maker can meet its fourth-quarter delivery targets.

Other notable decliners included:

  • Palantir Technologies: Down 2.4% despite a 140%+ gain for 2025
  • Oracle: Fell 1.3% as enterprise software names retreated
  • AMD: Dropped 1.8% in sympathy with broader chip weakness

The selling wasn't panicked—more of a methodical profit-taking as portfolio managers squared positions before year-end.

The Santa Claus Rally: History vs. Reality

The Santa Claus rally refers to the final five trading days of December and the first two of January—historically one of the strongest periods for stocks. Since 1950, the S&P 500 has posted gains during this window 78% of the time, averaging a 1.3% return according to analysis from LPL Financial.

That's more than four times the typical 0.3% average return for any random seven-day period.

But history doesn't guarantee results. The 2025 version of the rally is already struggling:

  • Day 1 (December 26): Modest gains
  • Day 2 (December 29/Monday): Losses across all major indexes
  • Days 3-7: Still to come (December 30-31 and January 2-3)

For the rally to match historical norms, markets would need to stage a meaningful comeback over the next four sessions.

Context: A Banner Year Despite the Stumble

The late-December weakness shouldn't obscure what has been an exceptional year for stocks. Despite Monday's decline:

  • S&P 500: Up 17.4% year-to-date
  • Nasdaq Composite: Up more than 21%
  • Dow Jones: Up 13.9%, on pace for its best year since 2021

Within the S&P 500, communications services and information technology remain the year's biggest winners, up 32.5% and nearly 25% respectively. The AI trade that dominated headlines throughout 2025 delivered for investors who stayed the course.

"What we're seeing is normal year-end dynamics—profit-taking, tax positioning, thin liquidity. The fundamentals that drove 2025's gains haven't changed in the past week."

— Market commentary, December 30, 2025

What's Moving Markets This Week

Beyond the seasonal dynamics, several factors are influencing trading:

FOMC Minutes: The Federal Reserve released minutes from its December meeting Tuesday afternoon (covered separately), providing insight into internal debates over rate policy.

Thin Trading: Volume remains far below normal as institutional investors have largely closed their books. The resulting volatility is amplifying both gains and losses.

New Year's Holiday: Markets close on Wednesday, January 1 for New Year's Day, leaving just Tuesday and Friday as full trading sessions this week.

Looking Ahead to 2026

Wall Street strategists remain broadly optimistic about the year ahead, with most forecasting the S&P 500 will reach new highs in 2026. The consensus target hovers around 7,500, implying roughly 8-9% upside from current levels.

But that outlook comes with caveats. The incoming administration's tariff policies remain uncertain, the Fed's rate path is contested, and valuations are stretched by historical standards. The current price-to-earnings ratio for the S&P 500 sits around 22x forward earnings—well above the long-term average of roughly 16x.

What Investors Should Do

For long-term investors, a few days of weakness in late December rarely matters. The Santa Claus rally is a fun seasonal pattern to track, but it's not a reliable signal for what comes next.

More important is whether the fundamentals that drove 2025's gains—AI investment, consumer resilience, moderating inflation, and reasonable economic growth—remain intact heading into 2026. So far, the evidence suggests they do.

The market's holiday stumble may make for nervous headlines, but it doesn't change the underlying picture of an economy and stock market that, despite real risks, finished 2025 in remarkably good shape.