Wall Street Optimism: Will December Deliver the Long-Awaited Rally?

Wall Street is hoping December will continue its historical trend as one of the seasonally strongest months of the year, potentially turning the stock market around just in time for the annual “Santa Claus rally.”

Stocks are on track to close out a choppy month. While November—like December—is usually strong, this time weakness in leading tech companies weighed on the major indexes. On Friday, the Dow Jones Industrial Average and S&P 500 finished the month with modest gains, while the tech-heavy Nasdaq Composite took the brunt of the losses, dropping nearly 2%. All three indexes were significantly lower during the month before recovering in the final days.

But December could bring seasonal tailwinds back to the market and lift indexes toward historic highs. Historically, since 1950, it has been the third-strongest month of the year for the Dow and S&P 500; for the Nasdaq, it ranks as the third-strongest month since 1971, according to the Stock Trader’s Almanac.

“We think we’re moving from a perfect storm to maybe—not perfect, but a better environment,” says Ken Mahoney, CEO of Mahoney Asset Management. The recent weakness, “strange as it may sound, in our view set the stage for a stronger year-end rally.”

Optimists point to several bullish factors supporting the market. Wall Street is coming off a strong earnings season, with the S&P 500 expected to report a combined 13% growth, showing that companies have managed higher prices and tariffs while beating forecasts. Additionally, the Federal Reserve is expected to cut interest rates again in December, giving an extra boost to businesses sensitive to financing costs.

Year-end portfolio adjustments may also push prices higher—investors lagging behind the market often step back in to try to improve performance and beat benchmarks.

November’s weakness could mean the market is primed for a rebound, especially after steep declines in some of the highest-flying tech stocks. Nvidia fell 13% in November, Super Micro Computer was the biggest loser in the S&P 500 with a 35% drop, and Coinbase lost 21%.

As a result, Mahoney expects the market going forward to favor selective stock picking, particularly in companies linked to the AI economy. He says he is increasing tech exposure again after holding more cash in the fall, focusing on companies like Microsoft and AMD, which he considers attractive bets.

“We’re buying companies we believe remain leaders,” he says.

However, others worry that the recent sell-off could continue. Concerns remain that AI-related stocks have “borrowed” too much future growth to justify current valuations—a potential stumbling block for a market that already appears crowded.

This week, Javed Mirza of Raymond James, managing director of quantitative and technical strategies, noted that some recently triggered technical indicators point to a “corrective phase” that could pull the S&P 500 down by up to 10% over the next three months.