Markets enter the final week of 2025 with focus on the traditional "Santa Claus Rally" period that historically sees stocks gain during the last five trading days of December and first two days of January. The week features an abbreviated trading calendar with markets closed Thursday for New Year's Day and light volume expected throughout as institutional participation remains reduced following the Christmas break. Tuesday's FOMC meeting minutes will provide the only major catalyst, offering detailed insights into the Federal Reserve's December policy deliberations and the internal debates that shaped the more hawkish 2026 outlook. Economic data remains sparse with Wednesday's initial jobless claims and Chicago PMI before the holiday, followed by Friday's Manufacturing PMI providing the first economic snapshot of 2026. The week also brings heightened attention to Tesla (TSLA) as CEO Elon Musk's year-end deadline approaches for delivering unsupervised robotaxis in Austin, Texas—a promise that could prove consequential for the stock despite Musk's decade-long history of overly optimistic self-driving timelines.
Here are 5 things to watch this week in the Market.
Santa Claus Rally Dynamics and Year-End Positioning
The traditional Santa Claus Rally period encompasses the final five trading days of 2025 (December 26, 29, 30, 31, and January 2) and represents one of the most closely watched seasonal patterns in market history. Since 1969, the S&P 500 ($SPX) (SPY) has averaged gains of 1.3% during this seven-day period, with positive returns occurring roughly 78% of the time. The phenomenon is attributed to various factors including year-end portfolio adjustments, tax-loss harvesting completion, pension fund rebalancing, and general holiday optimism. However, this year faces headwinds from the Fed's more hawkish December meeting, persistent inflation concerns, and recent technology sector weakness following disappointing AI infrastructure earnings. Light volume during the period can amplify moves in either direction, making technical levels less reliable while creating potential for momentum-driven rallies or selloffs with limited fundamental justification. Historically, years where the Santa Claus Rally fails to materialize have often preceded weaker performance in the following year, making this week's price action potentially significant for early 2026 sentiment. Window-dressing activity by fund managers seeking to show winning positions in year-end reports may provide technical support for market leaders.
FOMC Minutes: Decoding the Hawkish Shift
Tuesday's FOMC meeting minutes at 2:00pm represent the week's most important fundamental catalyst, providing detailed insights into the Federal Reserve's December deliberations that resulted in a rate cut coupled with fewer projected cuts for 2026. The minutes will be scrutinized for any discussion about the conditions that would warrant pausing the cutting cycle, concerns about persistent inflation, and assessments of labor market resilience that shaped the more cautious outlook. Investors will search for clues about the internal debate among Fed officials, particularly any dissenting views about the December cut or disagreements about the 2026 policy path. The minutes may reveal how policymakers are weighing conflicting economic signals, including sticky inflation against labor market softening and consumer spending resilience. Any commentary about financial conditions, asset price levels, or concerns about reigniting inflation through excessive accommodation could influence market expectations for the pace of future policy adjustments. The release during a holiday-shortened week with reduced liquidity creates potential for amplified reactions to any hawkish or dovish revelations, particularly if the minutes contradict or significantly expand on Chair Powell's press conference messaging.
Tesla's Robotaxi Deadline and Autonomous Driving Reality
The year-end arrival brings intense focus on Tesla (TSLA) as CEO Elon Musk's deadline approaches for delivering unsupervised robotaxis in Austin, Texas—a promise that represents his most specific self-driving timeline despite a decade of missed predictions. Musk has raised the stakes by committing to such a near-term deliverable rather than using his typical "this year" or "next year" language that allows for perpetual postponement. Any successful demonstration of truly unsupervised autonomous operation would represent a watershed moment for Tesla's valuation thesis and the broader autonomous vehicle industry, potentially validating the company's massive investments in Full Self-Driving technology. However, skepticism remains high given Musk's track record of overly optimistic timelines and the significant regulatory, safety, and technical hurdles that remain for Level 4 autonomous operation. Even if Tesla demonstrates some form of unsupervised operation in a limited Austin geofence, questions will immediately arise about scalability, regulatory approval pathways, and commercialization timelines. The market's reaction to any announcements or lack thereof will provide important signals about investor willingness to continue valuing Tesla's autonomous ambitions at premium multiples heading into 2026.
Economic Indicators and 2026 Setup
Wednesday's initial jobless claims and Chicago PMI before the New Year's Day holiday will provide final 2025 economic data points, while Friday's Manufacturing PMI represents the first economic snapshot of 2026. The Chicago PMI has historically served as a reliable indicator of national ISM Manufacturing trends and will offer insights into industrial sector conditions and pricing pressures as the year concludes. Initial jobless claims continue tracking labor market health amid ongoing questions about employment momentum and the sustainability of consumer spending. Friday's Manufacturing PMI will be closely watched for any signs of industrial sector strengthening or deterioration entering the new year, with particular focus on new orders and employment components that provide forward-looking perspectives. The sparse economic calendar reflects the holiday period but these few releases will help establish baseline expectations for January's more comprehensive data. Any significant surprises could influence early 2026 positioning as institutional participants return from holiday breaks and begin implementing new year strategies based on evolving economic fundamentals.
Transition Week: 2025 Review and 2026 Outlook
The year-end week provides natural opportunity to assess 2025's market performance and establish frameworks for 2026 positioning. Technology stocks, particularly AI-related infrastructure plays, have driven much of the year's gains despite recent volatility raising questions about sustainability. The Federal Reserve successfully transitioned from hiking to cutting while avoiding recession, though persistent inflation and the more cautious 2026 outlook create uncertainty about the policy path ahead. Key themes likely to dominate early 2026 include AI monetization and return on investment, inflation trajectory and Fed policy response, consumer spending resilience amid economic uncertainties, and geopolitical developments including potential trade policy shifts. The light volume environment during this transition week means meaningful price discovery will be limited until institutional participation returns in early January. Investors should use this period to review portfolio positioning, assess risk exposures, and develop strategic frameworks for navigating 2026's opportunities and challenges rather than reacting to potentially meaningless holiday-period price fluctuations in thin markets.
Best of luck this week and don't forget to check out my daily options article.
On the date of publication, Gavin McMaster had a position in: SPY . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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