Wall Street warns: There may be no "Christmas market" this year! Is volatility the protagonist?
The "Christmas market" that has been the most popular on Wall Street over the years may be completely absent this time. RBC strategists warn that U.S. stocks may face a "volatility pit" in December! Investors should be prepared for market volatility. This article originates from an article written by Jinshi Data, which is organized, compiled and written by ForesigjtNews.
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The Christmas market is usually one of the most popular traditions on Wall Street. After Thanksgiving, U.S. stocks tend to slowly rise and volatility subsides, and December is often one of the strongest months of the year, but strategists say this year, Santa Claus may not appear.
“There’s not a single month this year that’s seasonal,” said Amy Wu Silverman, head of derivatives strategy at RBC Capital Markets.
There are many reasons. This year has been a constant reminder: this is not a normal market cycle. From DeepSeek's "crash" in U.S. stocks in February, to Trump's surprise reciprocal tariff announcement in April, to months of anxiety surrounding artificial intelligence (AI) valuations, investors have experienced a roller coaster ride, with stocks first hitting all-time highs, only to see volatility resurface in recent weeks.
This year, traditional playbooks fail because the rules of the game are changing on the fly. Strategists believe the disruption and uncertainty brought about by AI are fundamentally different from anything seen in the past decade.
This means that volatility may play a more important role this December.
Silverman said: "I don't know if we will have a 'Christmas market,' but we will definitely encounter another volatility 'pit,' or a volatility rebound." She pointed out that bearish sentiment in the options market has increased and investors are buying more downside protection rather than relying on the seasonal strength of U.S. stocks.
Omar Aguilar, CEO and chief investment officer of Schwab Asset Management, sees similar risks brewing beneath the surface.
"We are seeing dispersion and divergence in a lot of things," Aguilar said on Monday, noting that the arrival of new overall economic data following the government shutdown was uneven and there were early signs of a rotation of industry leaders.
“We are already seeing some signs that the momentum trade is starting to unwind,” he said.
This unwinding of momentum is still occurring despite the sharp swings in big tech stocks in recent weeks, both driving market gains and causing market pullbacks. Therefore, the conditions for a classic December rally are not as clear as usual.
Aguilar said: "This time, the opportunity for catalysts that can drive the market up does not seem to be that strong."
He also mentioned that although a potential rate cut by the Federal Reserve may reverse market sentiment, even a rate cut is not guaranteed: "Perhaps a rate cut by the Federal Reserve will be an additional driving force for the market to continue to rise. But it is not clear whether this will happen in 12 "Occurred in March."
In recent months, market expectations for interest rate cuts have fluctuated significantly, and U.S. stocks have tended to fluctuate in tandem with changes in the Federal Reserve's outlook.
According to CME's "Federal Reserve Watch", current market pricing shows an 83% chance of the Fed cutting interest rates at its December meeting, compared with about 30% just last week.
Aguilar said the near-term doubling of interest rate cut expectations could provide an important catalyst for U.S. stocks, even if the outcome is uncertain. He added that the bigger driver in the long term will be the returns on investments in AI and how quickly those benefits start to show up in the economy.
As the debate at the Federal Reserve continues, Wall Street has turned its attention to longer-term prospects. Many strategists still expect U.S. stocks to continue higher over the next 12 to 18 months, with some targets as high as 8,000.
Strong corporate performance and solid AI fundamentals support this outlook. Third-quarter profits for S&P 500 companies rose 13.4%, with much of the growth driven by Big Tech companies, according to FactSet. This marked the fourth consecutive quarter of double-digit profit growth and was above the 10-year average of 9.5%, although still below the 5-year average of 14.9%.
This keeps the long-term story intact even if the short-term path is bumpier. For investors trying to cope with uncertainty (and increased volatility), Aguilar's message is simple: "The time to rebalance is now."
