Why Conditions Are Strong for a Positive Conclusion to 2026
After a bout of volatility, market participants are optimistic about what lies ahead.
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Volatile action last week has created positive conditions for a strong finish to 2025. Investors were surprised by an upbeat and dovish Fed Chair Jerome Powell, but then reacted to more concerns about the health of the AI industry. There was strong rotational action in small-caps, retail, and a few other groups early last week, but technology led a broader selloff on Friday.
With just two weeks left in the year, there is a flood of opinions about what awaits in 2026. Strategists are sounding a mostly positive tone, even though there is concern about the potential for more rate cuts. There is a "bad news is good news" dynamic that is helping the market right now because any bad news will increase the chances of further rate cuts, but good news will provide optimism about economic growth.
The last two weeks of the year typically have an upside bias with the traditional Santa Claus rally occurring between Christmas and New Year’s Day. Investors are very aware of the upside bias and often try to front-run and make it self-fulfilling.
Three other factors that will influence the action are tax-loss selling, window dressing, and positioning for the new year. Investors will look to sell lagging names to offset some taxable gains, fund managers will want to ensure that their holdings at the end of the year paint an attractive picture, and some folks will look to close out positions and start fresh when the calendar rolls over.
After the volatility last week, conditions are good for positive positioning and stock picking to take hold. There will be some delayed economic news coming up and a few earnings reports, but the main focus this week will be on predictions about what lies ahead in 2026.
Keep in mind that there usually is increased volatility at the end of the year as large funds make portfolio adjustments, although there is also increased speculative trading as aggressive investors try to add relative performance.
I plan some very active trading, and I’ll be rolling out some of my top ideas and strategies for the year ahead.
At the time of publication, Rev Shark had no positions in any securities mentioned.
