Weekly Market Update for January 2, 2026

by Gavyn Jensen-Schneider, Research Associate

Last week’s gains were erased this week, putting an end to the “Santa Rally.” The S&P 500 finished the week down -1.03%, while the Nasdaq fell -1.52%. The 10-Year Treasury yield, an interest rate indicator, closed at 4.19%, up +5 basis points (bps) from last week. The 6-Month US Treasury, a favorite of our US Treasury strategy, rose +3 bps to 3.61%. Low trading volumes—which are typical around the holidays—make stock prices more volatile. Those low volumes, combined with a hawkish set of Federal Open Market Committee (FOMC) minutes, are likely what stopped the “Santa Rally” in its “reindeer tracks.”

Wednesday saw the release of the December FOMC minutes, which outline the committee’s decision-making process and indicate their approach to policy rate decisions at future meetings. Committee members are evidently worried about inflation, as “most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected.” However, the path of inflation is not yet determined, and “some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting.” Market expectations of a January rate cut sit at just 17%.

Calendar year 2025 was an overall positive one for markets. Each major index grew an above-average amount over the course of the year, even as structural changes to macroeconomics and trade could have forestalled growth. The S&P 500 ended the year up +16.4%, clearing its historical average return (since 2007) of +12.2%. The Nasdaq Composite followed suit, delivering +20.4% growth on the year and beating the historical average return by 3.3%. For both indices, AI-related names like Nvidia and Alphabet (Google’s parent company) led the way to above-average returns. 10-Year US Treasury yields fluctuated widely during the year but ultimately fell -40 bps to 4.17%. The 6-Month US Treasury fell -66 bps in 2025, with most of the drop occurring in the last five months of the year. These lower yields reflect the changing nature of the macroeconomy as the labor market has weakened, inflation has stabilized—albeit slightly above the 2% target—and the Federal Reserve cut the policy rate by 75 bps across the September, October, and December meetings.

With the New Year comes a fresh slate of data releases and the return of brokerage conferences. Labor market data seems to be the theme of the week, with five labor measurements—the ADP employment report, JOLTS, the Challenger job cuts report, nonfarm payrolls, and the unemployment rate—all on the docket. CES Las Vegas, a conference focused on consumer electronics, including AI bots, is the technology event of the week with keynote speeches from Nvidia CEO Jensen Huang and AMD CEO Lisa Su.