As 2025 draws to a close, Wall Street finds itself caught between two forces: growing doubts about artificial intelligence trading that have fueled this year’s gains, and the historically reliable seasonal patterns that have lifted markets in December for nearly a century.
The tension has left investors debating whether to chase the rally or prepare for a pullback.
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“Crowded trades don’t give easy money.”
The Santa Claus Rally, which covered the last five trading days of December and the first two days of January, has generated gains 79% of the time since 1929, with an average return of 1.6%. Over the past eight years, this decline has occurred only once.
However, skeptics say the pattern has become too well-known for its own good. “Seasonality works until everyone believes it – this is the most obvious trade of the year, and that’s the problem,” one investor said. Written on X. The basic argument is simple: markets punish consensus, not reward it.
Risk assets outside stocks are also showing cracks. Bitcoin is traded At around $89,460, it is down 6.9% over the past month after failing to maintain levels above $95,000 in late November. The cryptocurrency market cap is now around $1.78 trillion.
Moment of truth for artificial intelligence
The more fundamental concern lies in the artificial intelligence sector, which has driven the S&P 500’s rise to $30 trillion over the past three years.
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according to Bloombergsigns of uncertainty are growing — from Nvidia’s recent sell-off to Oracle’s decline after reporting higher-than-expected AI spending to souring sentiment around companies tied to OpenAI. “We are at the stage of the cycle where the rubber meets the road,” said Jim Morrow, CEO of Calodyne Capital Management. “It’s been a good story, but we’re kind of bracing at this point to see if the returns on investment will be good.”
The cost burden is staggering. Alphabet, Microsoft, Amazon, and Meta are expected to spend more than $400 billion on data centers over the next 12 months. Combined consumption expenditures are set to triple from about $10 billion in late 2023 to $30 billion by late 2026.
Teneo poll cited Wall Street Journal It found that less than half of current AI projects generated returns greater than their costs. However, 68% of CEOs plan to increase spending on AI in 2026. The survey showed that marketing and customer service were the most productive uses of AI, while applications in security, legal and human resources lagged behind.
There is also an expectations gap: 53% of institutional investors expect returns within six months, while 84% of CEOs of large companies believe it will take longer.
The issue of optimism
However, comparisons with the dot-com crisis may be exaggerated. The Nasdaq 100 currently trades at 26 times expected earnings, which is well below the 80-plus multiple seen at the height of the 2000 bubble. Nvidia, Alphabet, and Microsoft all trade at less than 30 times earnings.
History favors bulls. According to the financial bulletin Al Qubaisi’s messageThe last two weeks of December were the best weeks for stocks in the past 75 years, with the S&P 500 potentially hitting 7,000 by the end of the year.
In the short term, seasonal strength and FOMO could continue to support markets. But as 2026 approaches, whether AI investments deliver real returns will be the key variable determining the direction of the market.
