Stocks Rise on AI Trade as Holiday Week Kicks Off

Published as of: December 22, 2025, 9:13 a.m. ET

(Monday market open) Tech stocks rose early Monday, an early sign of a possible Santa Claus rally at the start of a holiday-shortened trading week that's light on earnings reports and data releases. Markets close at 1 p.m. ET on Wednesday for Christmas Eve before shutting for Thursday's Christmas holiday.

The S&P 500 index (SPX) is at risk of its first losing month since April, though a strong week could push it into the green. Year-end "window dressing" by institutional investors may provide a boost, but any big move in either direction over the coming days might lack conviction because volume usually turns lower during the holiday period.

The major indexes posted a second-straight winning session Friday following a four-day losing streak, lifted by rebounds in beaten-down Oracle (ORCL) and Nvidia (NVDA) after a bullish earnings report from Micron Technology (MU) eased jitters over the AI trade. Still, the S&P 500 and Nasdaq only eked out gains for the week, while the Dow Jones Industrial Average closed lower. An updated estimate of third-quarter gross domestic product (GDP) due at 8:30 a.m. ET tomorrow is expected to show seasonally adjusted annual growth of 3%, according to the Briefing.com consensus. That's down from the prior estimate of 3.8%.

1. AI second wave could pull in new sectors: The slumping tech sector showed life Thursday and Friday. Two sessions, however, don't necessarily change the recent pattern of investors rolling out of tech and into other sectors. Rotation could continue in the new year if earnings outlooks prove correct. Analysts expect slower earnings growth in the tech and communications sectors next year, but accelerating earnings in sectors like materials, industrials, utilities, and energy—all of which have AI connections. These sectors outpaced tech and communications recently, perhaps signaling that another phase of the AI buildout—construction—is well underway and could be an additional driver of 2026 growth. What's reassuring is that even with tech not participating much over the last month, other sectors have stepped up to the plate. That said, the S&P 500 index hasn't forged a new intraday high since late October and remains in a range between roughly 6,600 and 6,900. It's hard to make headway toward new highs without participation from tech, and it's a market that's churning with rotation below the surface.
    
2. Bank earnings under scrutiny soon: When earnings season accelerates in mid-January, big banks will be first out of the gate. The steepening yield curve has boosted financial stocks, with the sector up sharply over the past three weeks. It's also the sector with the best breadth, with 83% of shares trading above their 50-day moving averages as of last week. Also, the Cboe Volatility Index (VIX) remains subdued, signaling no immediate stress, and hedging activity remains contained. While lower volatility can limit trading revenue for big Wall Street banks, it also suggests near-term market strength that might raise demand for other services big banks provide, like mergers and initial public offerings. There's a lot of positive analyst sentiment around financial stocks due to the favorable yield curve, fiscal policy changes seen helping corporate balance sheets starting in 2026, and possible strength in the investment banking business.
    
3. Rate cut odds up, timing questioned: Last week's milder-than-expected Consumer Price Index (CPI) raised hopes of earlier rate cuts next year. "Like the labor market, we'll need to see a few more months of data now that the government is open to better gauge the state of the economy," said Collin Martin, head of fixed income research and strategy at the Schwab Center for Financial Research. "The likelihood of a cut in January is still low—but the Fed funds futures market has priced in a higher probability of a cut this spring. If last week's inflation trend is confirmed, then an earlier rate cut would be justified." Martin noted that the 2-year Treasury yield late last week was at the bottom of the 3.4% to 3.6% range it's held since early September, while the 10-year yield was near the high-end of its 4% to 4.2% range. "Those yields should be driven more by the expected terminal rate rather than short-term shifts in the actual timing of rate cuts," Martin said. "We continue to expect the 10-year yield to hover near 4% unless economic growth is expected to slow considerably." The terminal Fed funds rate—a level that's seen as neutral—is around 3%, according to the Fed's recent quarterly projections. Fed officials see rates near that by late 2027, but many market participants think that level can arrive by late 2026. The current target range is 3.5% to 3.75%, and the Fed currently expects to cut just once in 2026.

Nvidia (NVDA) rose nearly 2% in pre-market trade after Reuters reported the company would begin shipments of H200 chips to China by mid-February.

Tesla (TSLA) rose more than 1% in early trading after the Delaware Supreme Court on Friday reinstated Elon Musk's 2018 pay package.

Other AI- and chip-related stocks were higher early Monday. Micron rose nearly 4% on momentum from its earnings report last week, while Oracle was more than 2% higher after Wells Fargo reiterated an overweight rating on the stock. Marvell Technology (MRVL) rose more than 2%.

Honeywell (HON) fell about 1% in early trade after the company adjusted guidance, saying it would see a one-time charge in the fourth quarter that would cut operating income by $370 million.

Carnival (CCL) cruised to nearly 10% gains Friday after earnings impressed investors and the company reinstated its dividend. The CEO, in an interview with CNBC, cited strength in travel demand behind the company's solid guidance, and shares of competing cruise lines also gained on Friday.

Bitcoin futures (/BTC) rose more than 2% to top $90,000 early Monday, pushing shares in crypto treasury company Strategy (MSTR) up more than 3% and exchange Coinbase Global (COIN) up nearly 3%. Around $23 billion in bitcoin options are set to expire this Friday, Bloomberg noted, meaning volatility in bitcoin and other crypto tokens could surge.

Chances of a Fed rate cut in January were only 19.9% early Monday, according to the CME FedWatch Tool. FedWatch sees a 45.9% chance of rates being lower than today following the meeting in March.

Technically, the Nasdaq 100 (NDX) and S&P 500 index enter the week looking a bit stronger on the charts after both briefly fell below their 50-day moving averages last week and clawed back to finish above them by Friday. The S&P 500's 50-day moving average of 6,767 might be a level to watch this week on any pullbacks.

Rotation away from AI shows up on this one-month chart comparing the PHLX Semiconductor Index (SOX–candlesticks), the Russell 2000 small-cap index (RUT–purple line), and the S&P 500 index (SPX–blue line). Small caps have taken an unaccustomed lead in this three-way race after years of running well behind, with a big plunge in AI names hitting the SOX over the last week before a brief revival Thursday and Friday. Small caps fell last week and the broader S&P 500 index made light gains, but that also could reflect rotation into sectors like financials and materials that are among the S&P 500 leaders over the last month. Info tech ranks fourth from the bottom on the sector scorecard during that period.