US stocks were in the red on Wednesday as Wall Street prepared to close out a bumper year for equities, with investors showing limited appetite for risk after several mild sessions of declines.
The three broad indices were down around 0.2%
Despite the recent softness, the broader picture for 2025 remains firmly positive.
The S&P 500 is on track to finish the year up about 17%, marking its third consecutive year of double-digit gains.
The Nasdaq Composite, powered by sustained enthusiasm around artificial intelligence, has advanced roughly 21% over the year.
The Dow Jones Industrial Average has gained about 13%, lagging its peers somewhat due to its relatively limited exposure to large technology stocks.
A sharp recovery after spring turmoil
This year’s gains mark a striking turnaround from the turmoil seen in early April, when markets were rattled by President Donald Trump’s sweeping tariff announcement.
At its low point, the S&P 500 had fallen nearly 19% from its February peak and briefly slipped below the 5,000 mark for the first time since April 2024, putting it on the brink of bear market territory.
While equities have since staged a robust recovery, the recent pullback has drawn attention because it coincides with what is typically one of the strongest seasonal periods for stocks.
The final five trading days of the year and the first two sessions of the new year — often referred to as the “Santa Claus rally” — have historically provided equities with a late-year boost.
The absence of that familiar lift so far has made some investors cautious.
AI remains central
Artificial intelligence has been the defining force behind market performance for the past three years.
In 2023, the S&P 500 surged 24% following the debut of ChatGPT the prior year, which ignited intense investor interest in companies positioned to benefit from a technological shift likened to the early days of the internet.
That momentum continued in 2024, when the index rose another 23%.
In 2025, however, the AI-driven rally showed signs of fracturing. Performance among the so-called “Magnificent Seven” technology stocks diverged sharply, and gains broadened across other sectors.
Alphabet emerged as the standout among megacaps, climbing more than 65% year to date as investors increasingly bet that the search giant could gain an edge over competitors such as OpenAI.
By contrast, Amazon lagged, with shares up roughly 6% over the same period.
Labour market signals stability
Fresh labour market data released on Wednesday added to the narrative of economic resilience.
US initial jobless claims fell to 199,000 for the week ending December 27, down sharply from the prior week’s revised figure of 215,000.
The decline marked the lowest level in several weeks and came in well below the 220,000 threshold often associated with stable labour market conditions.
The four-week moving average of claims edged slightly higher to 218,750, reflecting modest weekly volatility typical of the holiday period. Continuing claims stood at about 1.86 million, indicating that short-term unemployment remains steady.
While seasonal distortions complicate year-end data interpretation, the sustained weakness in jobless claims suggests employers remain reluctant to cut payrolls, even as hiring momentum has cooled.
As markets head into the final sessions of the year, labour market resilience continues to provide a supportive backdrop for equities, even as investors weigh stretched valuations and shifting leadership within the rally.
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