Santa Doesn't Visit Wall Street

Equities started off the week lower, but bounced back on the first trading day of 2026. The official "Santa Rally" period is from December 24th to January 2nd. The S&P 500

Index return over that period was -0.7%. Much of that had to do with the drag of Mag 7 stocks, down more than 2.5% over that same time period. In fact, since the last week in October of 2025, Mag 7 stocks have under-performed other key areas of the market, such as mid-cap stocks, small caps, and international equities. It's possible that trend pushes into 2026 as profit-taking continues in elevated AI-related names.

The economic picture continues to look strong and market breadth overall is positive. New lows on the New York Stock Exchange are below the "low risk" level and at least

60% of stocks in the S&P 500 Index are above both their respective 50-day and 20-day moving averages. The Fed's own National Financial Conditions Index points to "loose" or strong financial conditions. Even though some elevated areas of the market may be lagging slightly, the health of the market overall is solid. It's natural for markets to shift from one sector(s) to other sectors as a solid economy lifts "all boats."

Despite the strong economy and rising stocks, there may be a pick up in volatility ahead. Stocks tend to experience more volatility in Mid-term election years. On

average, since 1950, mid-term election years have seen corrections of -17.5%. Much of this has to due with election season and the "uncertainty" that comes with it. Markets loath uncertainty, which typically creates volatility. The good news? The 12-month return following a mid-term election year correction is a positive +31.7%. Given the expectation of more choppiness in the market over the coming 12 months, it further makes sense to consolidate elevated positions into other areas of the market that may be under-valued.

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Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.