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As the end of 2025 approaches, Wall Street finds itself caught between two forces: growing doubts about AI trading that have driven this year’s gains, and reliable historical seasonal patterns that have lifted markets in December for nearly a century.
This tension has left investors hesitating whether to chase the rally or prepare for a pullback.
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“Busy trading doesn’t give easy money.”
The Santa Claus Rally, which covers the last five trading days of December and the first two days of January, has gained 79% since 1929, with an average return of 1.6%. In the last eight years, this decline has happened only once.
However, skeptics argue that this model has become too popular. “Seasonality works as long as everyone believes – this is the most obvious business of the year, and this is the problem,” wrote one investor. To X. The basic argument is simple: markets punish compliance, not reward it.
Risk assets outside of stocks are also showing cracks. Trading Bitcoin At around $89,460, it is down 6.9% over the past month after failing to hold levels above $95,000 at the end of November. The market capitalization of the digital currency is now about $1.78 trillion.
Moment of truth artificial intelligence
The main concern is the artificial intelligence sector, which has pushed the S&P 500 to a $30 trillion rally over the past three years.
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Second Bloombergsigns of skepticism are growing – from Nvidia’s recent selloff to Oracle’s decline after reporting higher-than-expected spending on AI to deteriorating sentiment around companies associated with OpenAI. “We are at a point in the cycle where the rubber meets the road,” said Jim Morrow, CEO of Calodyne Capital Management. “It was a good story, but we started preparing to see if the investment returns would be good.”
The cost burden is huge. Alphabet, Microsoft, Amazon and Meta are expected to spend more than $400 billion on data centers in the next 12 months. Their combined consumer spending is expected to triple from about $10 billion by the end of 2023 to $30 billion by the end of 2026.
A survey Teneo cited found The Wall Street Journal Less than half of current AI projects achieve returns that exceed their costs. However, 68% of CEOs plan to increase AI spending in 2026. The survey showed that marketing and customer service were the most productive uses of AI, while applications in security, legal and HR lagged behind.
There is also a gap in expectations: 53% of institutional investors expect returns in six months, while 84% of CEOs of large companies believe that it will take more.
The argument for optimism
However, comparisons to the collapse of Internet companies may be exaggerated. The Nasdaq 100 currently trades at 26 times expected earnings, which is well below the return number of 80 seen at the height of the 2000 bubble. Nvidia, Alphabet and Microsoft trade at less than 30 times earnings.
History tends towards the bulls. According to the financial bulletin The Letter from KobeissiThe last few weeks of December have been the best weeks for stocks in the last 75 years, as the S&P 500 may reach 7,000 by the end of the year.
In the short term, seasonality and FOMO may continue to support markets. But as 2026 approaches, whether AI investments provide real returns will be the key variable that determines the direction of the market.
