Wall Street has delivered yet another strong year for investors. The S&P 500 is up 16% year to date, while the technology-heavy Nasdaq has returned 20.5%. The gains have swelled portfolio balances, resulting in the average investor’s 401(k) account at Fidelity reaching a record high of $144,400 at the end of September.
The returns haven’t come in a straight line. Far from it. The S&P 500 dropped 19% in the spring due to higher-than-expected tariffs and retreated 5.5% in November, raising questions about what could be in store for the final month of 2025.
There’s plenty of fodder for bulls and bears alike. Federal Reserve rate cuts and rapid AI advances are driving earnings growth, but tariffs are dragging on profits, and with the S&P 500’s P/E ratio flirting with 22, according to FactSet, valuations are arguably stretched.
Sam Stovall, CFRA’s chief investment strategist, appears unconcerned. Stovall has navigated the market for over 30 years, including as managing director and chief investment strategist at S&P Global and editor-in-chief at Argus Research, an independent investment research firm based in New York City. He believes the stock market is poised for a strong finish to 2025.
While the economy has some notable cracks, including rising unemployment and rebounding inflation, December is historically one of the best-performing months of the year, as holiday bonuses and end-of-year maneuvering help prop up markets.
am Stovall, CFRA Chief Strategist, recently updated his stock market outlook for December 2025.Bloomberg/Getty Images.” loading=”eager” height=”540″ width=”960″ class=”yf-1gfnohs loader”/>
Sam Stovall, CFRA Chief Strategist, recently updated his stock market outlook for December 2025.Bloomberg/Getty Images.
Stovall wrote in a CFRA research note shared with TheStreet:
Overall, since 1950, the S&P 500 and Nasdaq have increased by an average of 1.5% and 1.6%, respectively, in December, according to the Stock Trader’s Almanac. The Russell 2000 small-cap index does even better, returning an average of 2.3% in the month since 1979.
The excess return for small caps is pronounced enough to have earned it a name: the “January Effect.” According to the Stock Trader’s Almanac, small-cap stocks tend to begin outperforming large caps by mid-December, historically, and remain strong during January, outpacing large-cap peers.
Stovall’s data crunching, however, shows that there are winners and losers in December. Communications services, industrials, and utilities lead, and energy, information technology, and real estate lag.
More Wall Street:
Story Continues
He thinks that the backdrop this year supports seeing typical December strength, citing a friendly Federal Reserve and earnings growth.
“Catalysts for the December optimism include a possible 25 basis-point cut in short-term rates in an attempt by the Federal Reserve to get ahead of a softening jobs market, as we project a shutdown-influenced jump in the unemployment rate to 4.7%,” wrote Stovall. “Q4 earnings per share (EPS) are now projected to rise nearly 7%, according to S&P Capital IQ, versus the September 30 estimate of 6.1%.”
The Fed’s dovish monetary policy may help fuel GDP growth in 2026, supporting corporate sales and profits. Stocks tend to follow earnings over time, so earnings optimism could lift stock prices.
December’s historical tailwinds could be thrown a curveball this year. The U.S. government shutdown means that when the Fed makes its next interest rate decision on December 10, it will be doing so without key data, specifically the unemployment and inflation rates for October.
The Bureau of Labor Statistics plans to unveil the October unemployment figures alongside the November data on Dec. 16. The Consumer Price Index inflation numbers will similarly be released with November’s data on Dec. 18.
The December Fed decision will have to rely on available data from alternative sources and outdated figures. In September, the U.S. unemployment rate hit a four-year high at 4.44%, while CPI inflation was 3%, up from 2.3% in April before most tariffs went into effect.
Alternative jobs data, including ADP jobs report and layoffs data from Challenger, Gray, & Christmas, may be enough to justify another quarter-percentage point cut on Dec. 10. The CME FedWatch tool currently places odds of a cut at 87%.
ADP reports that only 10,000 jobs have been created in the past three months, a substantial decline from the pace of over 100,000 per month earlier this year. Meanwhile, Challenger, Gray, & Christmas reports that U.S. employers have laid off 1.1 million workers in 2025, representing a 65% year-over-year increase.
What happens in January, though, will depend on the mid-month jobs and inflation data deluge. If that data is worrisome enough to suggest the U.S. economy is heading toward stagflation, or worse, recession, then we could see investors press the sell button into year’s end to lock in their gains.
Related: Fidelity fund manager resets tech stocks forecast for 2026
This story was originally published by TheStreet on Dec 1, 2025, where it first appeared in the Investing section. Add TheStreet as a Preferred Source by clicking here.
