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The traditional market “Santa rally” — a seasonal phenomenon in which stocks often rally through November and December — has been conspicuous by its absence this year, as fears about massive spending on infrastructure by highly valued artificial intelligence companies have weighed on investors’ minds.
“December is often synonymous with buoyant equities,” wrote analysts at Bank of America. “But this year’s backdrop is anything but ordinary. From AI-driven volatility to shifting Fed expectations . . . investors are navigating a landscape where traditional year-end patterns could be challenged.”
On average, since 1928, the S&P 500 has risen 4 per cent between October 28 and New Year’s Eve, Deutsche Bank analysis showed. This year, both the S&P 500 and the tech-heavy Nasdaq Composite are in negative territory in that period so far.
Earnings from Oracle and Broadcom, both of which fell short of analysts’ lofty expectations, were the catalysts for the most recent market wobbles. Oracle’s share price has fallen about 45 per cent from its September peak and, in a sign of contagion, Nvidia is down about 15 per cent since the start of November.
But despite the recent jitters, global equity markets have still logged double-digit gains this year.
Mislav Matejka, head of global and European equity strategy at JPMorgan, suggested that investors might “square positions and reduce directional risk into the end of the year” to lock in their 2025 gains. “You don’t have a tailwind in the very near term,” he suggested.
While a full reversal of recent losses may be off the cards, the final trading sessions of the year are unlikely to do damage to a very strong year for markets. Emily Herbert
How much did US growth slow in the third quarter?
Investors will get a final pre-Christmas reading on the health of the world’s largest economy this week, and Tuesday’s GDP data is expected to paint a buoyant picture despite growth slowing.
Economists polled by Reuters forecast that output expanded at an annualised rate of 3.2 per cent in the third quarter, easing from 3.8 per cent in the previous three months but comfortably ahead of the 2.3 per cent pace recorded a year earlier. If realised, the data would reinforce the view that the US economy continues to outperform its peers even as growth moderates.
The release has been delayed by the federal government shutdown earlier this year, which also caused the Bureau of Economic Analysis to scrap its customary advance estimate for the third quarter. Instead, it will publish a combined first and second estimate, heightening recent uncertainty about official data.
Much of the third quarter’s momentum is expected to have come from capital spending linked to the artificial intelligence boom, particularly investment in data centres and computing equipment. Matthew Martin, senior US economist at Oxford Economics, estimates that such investment has added roughly $60bn to real GDP over the past two years and said this week that “this is only likely to grow”. Investors will be keen to assess how concentrated that strength has been, and whether it reflects a broader uplift in business investment.
Household consumption will be another focal point. Consumer spending has remained resilient despite elevated interest rates and early signs of cooling in the labour market, providing a crucial buffer against slowing growth elsewhere. Investors will look closely at whether services spending continued to offset weakness in goods demand as households adjusted to tighter financial conditions.
Yet confidence in the data itself may be fragile. Restrictions placed on the Bureau of Labor Statistics during the government shutdown have already raised doubts about recent economic releases. Markets barely reacted to data this week showing a sharp slowdown in consumer price inflation, with investors discounting figures compiled amid gaps in survey collection — a scepticism that may also colour the reception of next week’s GDP report. Kate Duguid
Is Australia moving closer to a rate rise?
When the Reserve Bank of Australia decided earlier this month to leave its policy interest rate unchanged at 3.6 per cent, it also signalled a “more broadly based pick-up in inflation”, intensifying speculation that its next move would be to raise rates, after three cuts this year.
Traders are ascribing a roughly 25 per cent chance to the RBA’s first rise coming in February, according to levels implied by derivatives markets. The minutes of the December meeting, to be released on Tuesday, will be pored over by investors for anything that supports or contradicts that view.
Australia has been one example, along with Canada and others, where global rates traders have moved to call the end of the rate-cutting cycle, prompted by stubborn inflation and stronger than expected economic data.
RBA governor Michele Bullock said on the day of the December decision that the rate-setting board would “do what it thinks it needs to do” to get inflation back to the 2.5 per cent midpoint of its target range. Inflation was running at 3.8 per cent in October.
“We expect the minutes to contain information on what the board would need to see to produce a rate hike,” said analysts at Citi. The minutes will also be closely watched by rate-setters elsewhere, for whom Australia might be a sign of things to come. Ian Smith
