Wall Street is balancing year-end seasonal optimism against rising scepticism surrounding the artificial intelligence trade.
The Santa Claus rally, covering the final days of December and early January, has delivered gains 79% of the time since 1929.
Average returns during the period stand at roughly 1.6%, making it one of the market’s most cited seasonal trends.
Some investors warn the rally has become a crowded trade, increasing the risk of disappointment.
“Seasonality works until everyone believes it does — this is the most obvious trade of the year, and that’s the problem,” one investor said.
Risk assets outside equities are also under pressure, with bitcoin (CRYPTO:BTC) trading near $89,460 after failing to hold above $95,000 in late November.
Bitcoin has fallen almost 7% over the past month, cutting its market capitalisation to about $1.78 trillion.
Attention is increasingly turning to the AI sector that helped drive the S&P 500’s powerful multi-year rally.
Major technology firms have poured capital into AI infrastructure, lifting valuations but raising questions about returns.
Nvidia and Oracle have both seen recent sell-offs linked to rising AI investment costs.
“We’re in the phase of the cycle where the rubber meets the road,” Jim Morrow said.
Alphabet, Microsoft, Amazon and Meta are expected to spend more than $400 billion on data centres in the next year.
Surveys show fewer than half of AI projects have so far generated returns above their costs.
Despite this, most executives plan to increase AI spending in 2026.
Supporters argue valuations remain well below dot-com bubble extremes.
Seasonal momentum could still lift markets short term, but AI profitability will shape what comes next.
At the time of reporting, Bitcoin price was $89,587.35.