Wall Street kicked off the final week of 2025 with a pullback, as investors took profits in technology stocks after the S&P 500 touched fresh record highs last week. The benchmark index fell 0.4% on Monday, December 29, while the Nasdaq Composite shed 0.5% and the Dow Jones Industrial Average dropped 175 points, or 0.3%.
Monday's Market Action
The session reflected typical year-end dynamics:
- S&P 500: Down 0.4% to approximately 6,900
- Nasdaq Composite: Down 0.5%
- Dow Jones: Down 175 points (0.3%)
- Volume: Well below average amid holiday-thinned trading
Technology megacaps led the decline, with investors trimming positions in the sector that has driven much of 2025's gains. The profit-taking comes after a strong finish to last week, when the S&P 500 closed at a record 6,929.94 on December 26.
Year-to-Date Performance Remains Strong
Despite Monday's pullback, 2025 has been a banner year for stocks:
- S&P 500: Up nearly 18% YTD
- Nasdaq Composite: Up more than 22% YTD
- Dow Jones: Up 14.5% YTD, on track for best year since 2021
The gains have been driven by artificial intelligence enthusiasm, resilient corporate earnings, and Federal Reserve rate cuts that began in the second half of the year.
Santa Claus Rally in Progress
Wall Street is currently in the midst of the traditional "Santa Claus rally" period, which spans the last five trading days of the year and the first two trading days of January. Historically, this period has been favorable for stocks:
- Average gain since 1950: More than 1%
- Positive frequency: 78% of the time
- Predictive value: When Santa fails to deliver, January and full-year returns tend to disappoint
Monday's decline doesn't derail the Santa rally—the full seven-day period is what matters, and the market remains near all-time highs.
Key Events This Week
The final trading week of 2025 brings several important data points:
Wednesday, January 1 (New Year's Day):
- Markets closed
- FOMC December meeting minutes released
- ADP employment report
Thursday, January 2:
- Tesla Q4 delivery numbers expected
- Weekly jobless claims
Friday, January 3:
- ISM Manufacturing PMI
- First full trading session of 2026
Sector Performance
Monday's weakness was concentrated in growth-oriented sectors:
- Technology: Down 0.6%, with megacaps dragging
- Consumer Discretionary: Down 0.4%
- Communication Services: Down 0.3%
- Utilities: Up 0.2% (defensive rotation)
- Healthcare: Flat (defensive)
Trading Volume and Liquidity
Holiday-thinned trading conditions characterized the session:
- Volume approximately 40% below 20-day average
- Many institutional traders away until January
- Thin liquidity can amplify moves in either direction
- Individual stocks more susceptible to outsized swings
Looking Ahead to 2026
Wall Street strategists have published optimistic forecasts for the new year:
- Median S&P 500 target: 7,500-8,000
- Expected upside: 10-15%
- Key drivers: Continued AI investment, broadening earnings growth, potential Fed cuts
- Key risks: Tariff policy, inflation resurgence, valuation concerns
What Investors Should Do
For the final days of 2025:
Tax-loss harvesting: Last chance to realize losses for 2025 tax purposes.
Rebalancing: Consider trimming winners that have grown to outsized portfolio positions.
Stay the course: One-day pullbacks after record highs are normal and healthy.
Prepare for 2026: Review investment goals and contribution limits for retirement accounts.
The Bottom Line
Monday's pullback in the S&P 500 represents routine profit-taking after the index hit record highs last week. With the market up nearly 18% for the year and the Santa Claus rally period still in progress, investors have little reason for concern. The final trading week of 2025 brings thin volumes and limited catalysts until the Fed minutes and employment data arrive on Wednesday. For most investors, the appropriate response is patience—let the year-end noise pass and focus on the longer-term opportunity that 2026 may bring.
