The S&P 500 Index showed a positive turn in the stock market, gaining 0.8% on Thursday, breaking a four-day losing streak, and closing with a similar uptick on Friday. This performance marked the conclusion of the last full trading week for U.S. stocks this year. Historical trends suggest that a continued upward movement in U.S. stocks is a real possibility; since 1928, Citadel Securities reports that there is a 75% probability of the S&P 500 rising during the last two weeks of December, with an average increase of around 1.3%.
December has seen considerable speculation among U.S. stock traders regarding the anticipated year-end “Santa Claus rally.” Optimism resurfaced this week, sparked by a lower-than-expected inflation report that fueled expectations for interest rate cuts in the coming year. The technology sector led the charge, with Bloomberg’s Big Seven Index climbing 2% and the Nasdaq 100 Index up 1.5% after a week of volatility. On Friday, the rally continued, driven by notable gains in Micron Technology and Oracle, pushing the Nasdaq 100 up more than 1% once again.
Investors have been paying close attention to the technology sector, especially firms within the artificial intelligence realm that have been under considerable pressure recently. Following Micron Technology’s promising earnings report, market sentiment shifted positively, suggesting a potential buying opportunity for investors. This optimism has translated into a surge in call options by derivatives traders, betting on further rebounds in technology stocks. Data from Susquehanna indicates a notable uptick in call spreads related to major players like NVIDIA, Micron Technology, and the Technology Select Sector SPDR Fund (XLK), while put options on companies such as Alphabet, NVIDIA, and Broadcom have also seen selling interest.
Chris Murphy, from Susquehanna’s Derivatives Strategy team, reflected growing market confidence, emphasizing that investors are using any pullbacks in technology stocks to boost positions in sectors like artificial intelligence and semiconductors. Overall, the sentiment in the U.S. stock market remains buoyant. Investors have poured about $100 billion into U.S. equities over the last nine weeks, continuing a trend that began in 2025.
Retail investors, the primary driving force of this year’s market momentum, continue to exhibit strong buying behavior. Citadel Securities noted that retail traders have net purchased U.S. equity call options in 32 of the past 33 weeks, marking the longest acquisition streak on record for the firm. Scott Rubner of Citadel commented that after a year of robust returns and impressive household wealth growth, retail investors are stepping into 2026 with confidence and capital.
Institutional investor sentiment is also on the rise, with aggressive purchases of call options across various sectors, not just the technology giants. There has been increased investment in economically sensitive sectors like real estate and industrial stocks, which have shown the strongest buy signals for the last two weeks.
As the market gears up for the annual seasonally quiet period, the recent reduction in the S&P 500’s realized volatility could give additional support to equity allocations by trend-following and volatility-hedging funds. Goldman Sachs noted that there remains potential for further compression in volatility, suggesting that systemic leverage operations may gain traction.
The anticipation for this year’s Santa Claus rally, defined as the S&P 500’s performance during the last five trading days of the year and the first two days of January, is bolstered by promising economic data. Historical observations indicate that since 1950, this phenomenon has resulted in an average gain of 1.3%. With the Santa Claus rally set to commence next Wednesday, expectations are running high.
Angelo Kourkafas from Edward Jones stated that this week’s economic indicators have strengthened expectations for a Federal Reserve rate-cutting strategy. While some investors may seek to lock in profits in the coming days, possibly leading to selling pressure, the recent data appears to pave the way for a favorable Santa Claus rally this year.
