The S&P 500 wrapped up November just fractions from its record peak, closing Friday at 6,849 after a 1.7% weekly surge. As Wall Street flips the calendar to December, traders are piling into bets on a classic year-end rally, with markets now pricing an 87% chance of a 25-basis-point Federal Reserve rate cut at the December meeting. Beneath the holiday cheer, however, volatility warnings are flashing: immigration policy uncertainty, sky-high tech valuations, and a brutal crypto wipeout are keeping investors on high alert.
November’s rebound was nothing short of remarkable. After a shaky October sell-off sparked by tariff fears and labor market wobbles, the benchmark clawed back losses and finished the month up over 9%. Mega-cap tech giants continued to carry the load, with AI-fueled earnings from Nvidia, Microsoft, and the rest of the Magnificent Seven accounting for the lion’s share of gains. Year-to-date, the S&P 500 is now up more than 28%, cementing 2025 as one of the strongest years on record.
What changed the mood so dramatically? A clear dovish pivot from the Federal Reserve. Cooling job growth, moderating wage pressures, and inflation trending toward the 2% target have convinced policymakers—and markets—that one final trim is warranted before pausing. The latest comments from regional Fed presidents have sent rate-cut probabilities soaring from barely a week ago the odds sat below 50%.
History strongly favors the bulls here. When the Fed has eased rates outside of a recession, the S&P 500 has averaged 18% gains over the following twelve months. Lower borrowing costs would provide rocket fuel for rate-sensitive sectors like real estate, utilities, and small-cap stocks that have dramatically underperformed the tech-heavy index this year.
Yet December has rarely been boring, and 2025 looks no different. Monday’s session opened weakly, with the index dipping 0.3% as a vicious cryptocurrency sell-off spilled over into equities. Bitcoin’s 6-8% plunge liquidated more than $1 billion in leveraged positions and served as a stark reminder that risk appetite can vanish overnight.
Adding to the tension are fresh policy signals from Washington. The incoming administration’s aggressive stance on immigration enforcement is already rattling industries reliant on migrant labor, from agriculture to construction. Higher labor costs could feed directly into corporate margins at the exact moment many economists are warning about sticky services inflation.
Technical indicators are equally mixed. The VIX has jumped 11% in recent sessions, and options traders are aggressively buying downside protection. Small-cap and value stocks remain deeply discounted to their growth counterparts, hinting at either a massive rotation opportunity or a classic late-cycle warning sign.
This week’s economic calendar could prove pivotal. Friday’s core PCE inflation print the Fed’s preferred gauge will either lock in the December cut or trigger a sharp repricing. Earnings from key AI players like Marvell and CrowdStrike will also test whether the trillion-dollar spending spree on data centers is translating into actual profits or merely hype.
For now, the path of least resistance appears higher. Seasonal tailwinds, dovish central bank pricing, and still-robust corporate earnings form a powerful trifecta. But with the index trading at 23 times forward earnings and concentrated in just a handful of names, any stumble could spark a rapid deleveraging event.
One thing is certain: December 2025 will not be quiet. Whether the S&P 500 finally eclipses its all-time high and kicks off a true Santa Claus rally, or whether volatility returns with a vengeance, remains the $60 trillion question hanging over global markets. Investors would be wise to enjoy the eggnog while keeping one hand near the sell button.
