The Santa Rally That Wasn’t, Strong Year Nonetheless
January 5, 2026
Wishing a Happy New Year and strong market returns ahead! During the final week of 2025, equity markets didn’t experience the Santa Claus rally that investors were expecting. The S&P 500 Index finished its final days of the year down 1.2%, yet still posted a 17.9% gain for the full year.1 The bond market also closed on a weak note with a late-day Treasury selloff on New Year’s Eve. The investment-grade corporate bond market was down slightly in the week following Christmas but still delivered a strong annual return of 7.77%.2 The best performing U.S. fixed-income asset class in 2025 was the corporate high-yield market, which ended the year up 8.62%.3
Although equity markets had a slow start to the new year on Friday, the S&P 500 Index rose 0.19%, breaking its four-day losing streak from the end of 2025.4 Artificial intelligence (AI) enthusiasm carried into 2026; however, uncertainty around potential Federal Reserve rate cuts, ongoing inflation and the possibility of higher interest rates continued to weigh on investor sentiment. Additionally, major news over the weekend was the U.S. apprehension of Venezuelan President Maduro and announcing plans to restore the country’s oil infrastructure. Although this development hasn’t yet affected oil prices, worries regarding shortages in other commodities—such as copper—have driven those prices higher to start the week.5
The first full week of the new year is expected to be busy, especially for fixed-income capital markets. Forecasters are calling for corporate issuance in January at approximately $215 billion,6 which compares to the four-year average of $168 billion.7 About $70 billion in issuance is anticipated for the first full week of January, and investors are expected to absorb it easily due to light dealer inventories.8 Today’s key U.S. economic release is the December Institute of Supply Management (ISM) Manufacturing Index, while the Services ISM and the Job Openings and Labor Turnover Survey (JOLTS) are scheduled for Wednesday.9 The main event will be on Friday with the December jobs report, where the Street is expecting an increase in nonfarm payroll by 60,000, which would be in line with a steady unemployment rate of around 4.5%.10
Sources:
1-6, 8Bloomberg
7JP Morgan
9MarketWatch – U.S. Economic Calendar; as of 1/5/26
10Investing.com – Economic Week Ahead: Jobs Report, PMI and Inflation Expectations in Focus; 1/2/25
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High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
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