[New York Stock Exchange] Santa Rally Fades Amid Four-Day Slump... S&P Up 16% for Third Consecutive Year

Four Consecutive Days of Decline on Year-End Profit Taking
Double-Digit Annual Gains in Major Indexes Driven by AI Optimism and Rate Cuts
Volatility Expected to Increase in 2026

On the last trading day of 2025, January 31 (local time), the three major U.S. stock indexes closed lower for the fourth consecutive session. However, all three indexes posted double-digit gains for the year, continuing their strong performance.

On the 31st (local time), traders at the New York Stock Exchange (NYSE) in the United States are working while wearing glasses with "2026" written on them. Photo by AFP Yonhap News

On this day at the New York Stock Exchange, the blue-chip Dow Jones Industrial Average closed at 48,063.29, down 303.77 points (0.63%) from the previous session. The S&P 500 Index, which focuses on large-cap stocks, fell by 50.74 points (0.74%) to close at 6,845.5. The tech-heavy Nasdaq Composite Index dropped by 177.089 points (0.76%) to finish at 23,241.991.

By sector, major technology stocks all showed weakness. Nvidia, a leading artificial intelligence (AI) stock, declined by 0.55%. Apple fell by 0.43%, and Microsoft dropped by 0.8%. Alphabet, the parent company of Google, and Meta, the parent company of Facebook, slipped by 0.27% and 0.89%, respectively. Oracle fell by 1.17%.

This year, the stock market delivered strong returns, driven by optimism over AI growth and the U.S. Federal Reserve's interest rate cuts. The S&P 500 Index rose by 16.39% compared to the beginning of the year, and the Nasdaq Index surged by 20.36%. The Dow Jones Index, with a relatively lower proportion of technology stocks, saw more limited gains but still rose by 12.97% for the year. Notably, the S&P 500 Index, the flagship U.S. stock index, posted gains for three consecutive years-24% in 2023, 23% in 2024, and again in 2025-marking the longest upward streak since 2021.

However, several factors contributed to increased market volatility, including the protectionist stance of the second Donald Trump administration, geopolitical tensions, the burden of high valuations, and uncertainty regarding the future path of interest rates. In fact, after the announcement of reciprocal tariffs on April 2, the S&P 500 Index at one point dropped by 19% from its February high.

Keith Buchanan, Senior Portfolio Manager at Globalt Investments, analyzed, "The administration has learned that gradually implementing smarter and more limited tariff policies is a way the market can tolerate," and added, "Based on the experience of 2025, the market expects that even if tariff policies change in 2026, the administration will remember the lessons learned, and American companies will be able to respond quickly to protect profitability."

The much-anticipated 'Santa Claus Rally' at year-end appears to have lost momentum due to profit-taking. Typically, the Santa Rally period is considered to be the last five trading days of December and the first two trading days of January. Since 1950, during this period, the S&P 500 Index has risen by an average of 1.3% with a probability of 78%. Some interpret this as a signal of potential increased volatility in the stock market going forward.

Roberto Scholtes, Chief Strategist at Singular Bank, stated, "The stock market had an excellent year, and as of the end of November, positioning was near its peak, so portfolio and fund managers may have unwound existing bets and adjusted to match their benchmarks," adding, "We expect the bullish trend to continue, but volatility will increase, and returns will likely remain in the mid-single digits."

Yields on U.S. Treasury bonds are on the rise. The yield on the 10-year U.S. Treasury, the global benchmark for bond yields, rose by 5 basis points (1bp = 0.01 percentage point) from the previous day to 4.17%. The yield on the 2-year U.S. Treasury, which is sensitive to monetary policy, increased by 2 basis points to 3.47%.