The final trading week of 2025 opened with a decidedly risk-off tone as investors moved to lock in profits after a remarkable year for technology stocks. The S&P 500 fell 0.4% on Monday, while the tech-heavy Nasdaq Composite shed 0.7%, dampening hopes for a continuation of the Santa Claus rally that historically boosts equities during the year-end period.
Tech Giants Bear the Brunt
The pullback was most pronounced among the semiconductor and electric vehicle stocks that have driven much of this year's gains. Nvidia, whose shares have surged on artificial intelligence enthusiasm throughout 2025, retreated approximately 2%, giving back a portion of its more than 5% advance from the previous week.
Tesla also declined about 2%, as the electric vehicle maker faced renewed scrutiny over its valuation following a strong December rally. Other technology bellwethers including Palantir Technologies, Meta Platforms, Oracle, and Advanced Micro Devices all posted losses as the selling pressure spread across the sector.
A Banner Year in Perspective
Despite Monday's retreat, 2025 has been exceptionally rewarding for equity investors. The S&P 500 has climbed more than 17% year-to-date, while the Nasdaq Composite has outperformed with gains exceeding 21%. The Dow Jones Industrial Average has advanced 14%, putting it on track for its strongest annual performance since 2021.
"After a year of significant gains, some profit-taking is entirely natural and healthy for market structure. Investors are simply repositioning ahead of what promises to be an eventful 2026."
— Market strategist perspective
Treasury Yields Provide Context
The yield on the 10-year Treasury note slipped more than 2 basis points to 4.11%, while the 2-year yield fell more than 1 basis point to 3.465%. The modest decline in yields reflects a cautious stance among fixed-income investors as they await clarity on the Federal Reserve's policy trajectory for the coming year.
Thin Trading Volumes Expected
Market participants anticipate subdued volumes throughout the holiday-shortened week. Trading activity typically diminishes during the final days of December as institutional investors close their books and retail participation wanes.
The major exchanges will observe normal trading hours through Tuesday, with both the New York Stock Exchange and Nasdaq operating from 9:30 AM to 4:00 PM ET on New Year's Eve. Markets will be closed on Thursday, January 1, in observance of New Year's Day.
What to Watch This Week
Investors will focus on Wednesday's release of the Federal Reserve's December meeting minutes, which could provide additional insight into policymakers' thinking on interest rates heading into 2026. The minutes may shed light on the factors behind the Fed's revised projection of just one to two additional rate cuts in the coming year.
For long-term investors, the day's pullback serves as a reminder that even in strong bull markets, volatility remains a constant companion. The key question heading into 2026 is whether corporate earnings can continue to justify current valuations as the economic landscape evolves.
