AI Shares Spark New Year's Rally After 4-Day Slump

Published as of: January 2, 2026, 9:07 a.m. ET

(Editor's note: Due to light holiday trading, today's Schwab Market Update is an abbreviated version. For late-breaking market news, please tune in to the Schwab Network, which will be broadcasting today from 8 a.m. until 4:30 p.m. ET.)

(Friday market open) The traditional "Santa Claus rally" period didn't end with the old year, and 2026 rang in with stocks up on tech sector strength after trending lower all week. There's still a chance for gifts instead of coal in the stockings, depending on how today and Monday go. The early rally might reflect positive vibes from Asia, where Baidu's (BIDU) AI unit filed for an initial public offering, or IPO. Chip stocks were among the early leaders on Wall Street.

In trading parlance, the old joke about markets falling because of more sellers than buyers might help explain this week's action before today considering little news of note. Wednesday's fourth straight drop in the S&P 500 index (SPX) put it fractionally lower for December, making it the first month since April to finish in the red. At one point Wednesday, more than 90% of S&P 500 stocks traded lower. That's the kind of trading typically seen during deep market dives like the Covid sell-off in early 2020 or the tariff tantrum last April. Even so, the S&P 500 index rose 16% last year and the tech-heavy Nasdaq 100 (NDX) gained more than 20%.

If there's anything positive to take out of the week leading into today, it's that major indexes remain only around 1% below all-time highs, nearly 60% of S&P 500 stocks trade at or above their 200-day moving average, and volume was less than two-thirds of normal levels lately. Low volume often translates into light conviction, meaning the downturn might be discounted when full participation returns Monday. History shows that losses during the Santa Claus period are often followed by weak Januarys. That said, past isn't precedent.

1. Jobs data returns: Next week features a cornucopia of jobs reports. Job openings, ADP employment, and layoffs data form a red carpet leading to next Friday's December nonfarm payrolls report. After an anemic rise of 64,000 jobs in November—a report that was delayed due to the government shutdown—market expectations for December's jobs numbers aren't yet public. All this news on labor trends might give investors a better sense of how the Federal Reserve might act in coming months. The language in minutes from the Fed's last meeting was generally vague, but indicated "some" officials thought it would be appropriate to keep rates unchanged for some time. "The bias is still towards more easing, but it could be difficult to build consensus, and we expect more dissents going forward," said Collin Martin, head of fixed income research and strategy, Schwab Center for Financial Research. "We project one or two rate cuts in 2026 based on our outlook of a cooling (not crumbling) labor market and still sticky inflation, and the Fed may hold rates steady for a few meetings to start the year, just like the approach in 2025."
    
2. Profit-taking may not be over: Though it's tempting to think stocks might stage a rally now that the calendar has turned and data and earnings soon start to resurface, there's no guarantee that the profit taking that characterized the final days of December won't continue. Participants often wait until the new year to sell winners, putting off capital gains taxes until the following year. Some seasonal profit taking may have taken place in December this time, however, keeping the "Santa Claus" rally at bay, at least in recent sessions. The positive is, perhaps some of the traditional early year profit taking might be out of the way, imposing less of a headwind in January.
    
3. U.S. manufacturing read ahead: Much of next week's data tilt toward the labor market. It starts, however, with a look at the U.S. manufacturing economy, with ISM scheduled to deliver its December Manufacturing PMI at 10 a.m. ET Monday. This reading has been almost perpetually gloomy over the last year and fell to 48.2% for November. That's well below the 50% needed for expansion. In fact, the index hasn't had an expansion month in nearly a year despite the Trump administration's efforts to bring manufacturing back home. Analysts don't expect much change in December's reading, with estimates below 49%. This could reflect light new orders seen in the November report. Other items to monitor in the data are prices paid, which inched up to 58.5% in November, and employment, which fell to 44.0%. That's a combination that suggests "stagflation" in the manufacturing sector, Briefing.com noted when November's data arrived. However, interest rate cuts have historically led to increases in PMI, so perhaps the lagged effect of the Fed's three late-2025 rate cuts could eventually heat up this index.

Baidu rallied more than 11% early Friday after its AI chip unit filed an application to list on the Hong Kong stock exchange, Barron's reported.
 

Tesla (TSLA) climbed 1.6% early Friday. Investors await today's fourth-quarter delivery numbers, which analysts expect to fall. Consensus is for deliveries of around 440,000 vehicles, down from 497,000 in the third quarter and 496,000 in the fourth quarter of 2024, Barron's reported.
 

Early tech strength featured firm gains from stocks including ASML (ASML), CoreWeave (CRWV), Taiwan Semiconductor Manufacturing (TSM), Micron (MU), Arm Holdings (ARM), and Western Digital (WDC), all up 2.5% or more in overnight action. Nvidia (NVDA) rose 1.3% and Palantir (PLTR) climbed 2%. Bernstein raised its price target on Micron to $330.
 

Silver futures (/SI) clawed back early today after sliding more than 9% Wednesday. Volatility could get exacerbated by news that China might restrict silver exports. Mining stocks, including Newmont (NEM) and Hecla (HL), fell nearly 2% Wednesday and were both up more than 2% today, while Freeport-McMoRan (FCX) rose 1.9%.

Wayfair (W) and RH (RH) rose more than 2% and 4%, respectively, after the Trump administration announced it would delay an increase in furniture tariffs for a year.

Rivian (RIVN) rose nearly 2% in trading ahead of the open after reporting it produced 42,284 vehicles and delivered 42,247 in 2025, both in line with the company's expectations.
 

Nike (NKE) added 4% Wednesday on news that the company's CEO bought shares.
 

Berkshire Hathaway (BRK.B) started the new year slightly lower after rising 11% during 2025, the last year with Warren Buffett at the helm as CEO.
 

Bitcoin (/BTC), which fell in 2025, began 2026 on a positive note, up more than 2% and testing $90,000, near the high end of its recent range. Stocks associated with crypto generally climbed about 2% in the early going Friday.
 

Wednesday's weakness took 2025 gains down to 16.4% for the S&P 500 index and 20.2% for the Nasdaq 100, from 17% and 21% entering the session. The small-cap Russell 2000 index (RUT) rose 11.3% last year. For the S&P 500, it was the third-straight positive year and third-straight year of double-digit gains, though the index didn't climb as much as in 2023 or 2024.
 

The year ended with market breadth in relatively good shape. As of late Wednesday, just under 56% of S&P 500 stocks traded above their 50-day moving averages and 58.8% were atop their 200-day moving averages. This pattern suggests the long rally that fueled 16% gains for the S&P 500 index in 2025 isn't dependent on just a few mega-cap stocks that can move the entire market with their huge market capitalizations.
 

The S&P 500 Equal-Weight Index (SPXEW), which weighs all S&P 500 stocks the same, finished 2025 up just 9.3%. This reinforces how strength from heavyweights like Nvidia, Alphabet (GOOGL), Broadcom (AVGO), and Tesla helped the market-cap weighted S&P 500.
 

Futures trading prices in 15% odds of a January rate cut as of early today, according to the CME FedWatch Tool.

U.S. crude oil futures (/CL) fell below $57 a barrel, near the low end of their recent range, early today as Reuters reported that OPEC and its allies would likely keep production unchanged at their meeting this weekend. Crude had its largest annual drop since 2020 last year, falling nearly 20%.

Check out the investors' calendar for a summary of the top economic events and earnings reports on tap this week.

January 5: December ISM Manufacturing PMI.

January 6: No major data or earnings expected.

January 7: December ADP employment change, December ISM Services PMI, November Job Openings and Labor Turnover Survey (JOLTS), and expected earnings from Albertsons (ACI), Constellation Brands (STZ), Jefferies Financial Group (JEF), and Applied Digital (ADLP).

January 8: Challenger job cuts and expected earnings from RPM International (RPM).

January 9: December nonfarm payrolls, December unemployment, October housing starts and building permits, and January preliminary University of Michigan consumer sentiment.