Markets Pull Back, but the Year’s Story Is Already Written
U.S. stocks edged lower on Wednesday as the market cooled into year-end, but the bigger picture remains firmly bullish.
- S&P 500: down ~0.3% on the session, still up ~17% for 2025
- Nasdaq Composite: down ~0.3%, up ~21% for the year
- Dow Jones: down ~165 points, up ~13% in 2025
The declines extend a mild three-session losing streak, though selling pressure has been contained. Even with the pullback, 2025 is on pace to mark the third straight year of double-digit gains for U.S. equities.
From April Panic to Year-End Strength
The year’s gains are even more striking given how close markets came to breaking earlier in 2025.
Following the administration’s sweeping tariff announcement in April, the S&P 500 briefly fell nearly 19% from its February highs and dipped below the 5,000 level for the first time since 2024. At one point, the market flirted with bear-market territory.
Since then, sentiment stabilized as policymakers adjusted tone and corporations adapted quickly.
Many investors now believe the market has learned what it can — and cannot — absorb when it comes to trade shocks.
Santa Claus Rally Wobbles, Volatility Looms
Seasonally, the final five trading days of December and first two sessions of January are typically constructive for equities. The recent softness has raised eyebrows, but hasn’t meaningfully damaged the broader trend.
Still, strategists caution that 2026 could look very different.
- Earnings growth will need to catch up with valuations
- Markets may trade more range-bound
- Volatility could return as leadership rotates
The expectation: another positive year, but likely a bumpier one.
AI Still Matters — But the Trade Is Maturing
Artificial intelligence has powered markets for three consecutive years:
- 2023: S&P 500 +24%
- 2024: S&P 500 +23%
- 2025: S&P 500 +17%
That said, 2025 marked a shift. Performance broadened beyond the largest tech names, and returns among the so-called “Magnificent Seven” diverged.
- Alphabet emerged as a standout winner
- Amazon lagged despite steady fundamentals
The AI narrative didn’t disappear — it normalized.
Commodities Quietly Stole the Show
While equities grabbed headlines, commodities delivered some of the most dramatic moves of the year:
- Gold: up ~64%, best year since 1979
- Silver: up over 140%, also its strongest showing since the late 1970s
Geopolitical risk, inflation hedging, supply constraints, and industrial demand all played a role. Precious metals significantly outperformed many equity segments in 2025.
Market Internals Are Changing
Investors are increasingly focused on areas beyond AI infrastructure and rate policy.
Participation widened across:
- Industrials
- Energy
- Commodities
- Select healthcare and financials
This shift suggests 2026 may be driven more by fundamentals and earnings durability, rather than multiple expansion alone.
Month-End Check: Quietly Strong
Despite late-month choppiness:
- Dow: on pace for its 8th straight winning month
- S&P 500: also tracking an 8-month streak
- Nasdaq: roughly flat for December
Momentum hasn’t vanished — it’s consolidating.
WSA Take
2025 wasn’t just another AI-driven melt-up. It was a year where markets absorbed shocks, broadened leadership, and rewarded investors willing to look beyond megacaps. The pullback into year-end looks more like digestion than distribution. Heading into 2026, returns may come slower — but they’re likely to come from more places.
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