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U.S. stock futures are trading in negative territory to start the last trading day of 2025. Wall Street ended in the negative zone in the last three trading days. Financial researchers are skeptical of a Santa Rally this time.
Wall Street’s rally of U.S. stocks in 2023 and 2024 continued in 2025, albeit at a slow pace. Year to date, the three major stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — are up 13.7%, 17.3% and 21.5%, respectively.
In 2023, the Dow, the S&P 500 and the Nasdaq Composite rallied 13.7%, 23.3% and 43.4%, respectively. Similarly in 2024, the Dow, the S&P 500 and the Nasdaq Composite advanced 12.9%, 23.3% and 28.6%, respectively.
At this stage, the most important question is whether this more than three years old rally will continue in 2026. A majority of financial analysts and economists are hopeful of a 2026 rally too. The impressive bull run of the past three years had been primarily driven by the global artificial intelligence (AI) technology boom. Generative and agentic AI have transformed the entire landscape of the information technology sector worldwide.
AI Frenzy is Rock Solid
The AI saga, supported by the massive growth of cloud computing and data centers, is yet to fully unfold. This space remains rock solid, supported by an extremely bullish demand scenario. The demand for data center capacity has surged to manage and store the vast amount of cloud computing-based data. Goldman Sachs and Bank of America projected that AI infrastructure capex spending will cross $1 trillion in 2028. JP Moran and Citigroup forecast this figure to total $5 trillion cumulative in 2030. Research firm McKinsey & Co. estimated that global AI-powered data center infrastructure capex will reach around $7 trillion by 2030.
Four of the “magnificent 7” stocks have decided to invest a massive $380 billion in 2025 as capital expenditure for AI-infrastructure development. This marks a significant 54% year-over-year increase in capital spending on the AI ecosystem. Moreover, these companies have also said that AI capex is likely to increase handsomely in 2026.
Strong Q4 Earnings Expectations
Wall Street analysts are optimistic about fourth-quarter 2025. As of today, 18 S&P 500 companies have reported quarterly financial numbers, which Zacks and other research organizations count as part of the December-quarter tally. These include corporate giants like Oracle Corp. ORCL, FedEx Corp.FDX, NIKE Inc. NKE and Adobe Inc.ADBE.
Total earnings for these 18 index members are up 32.2% from the same period last year on 9% higher revenues, with 83.3% beating EPS estimates and 72.2% beating revenue estimates. Year over year, total earnings of the S&P 500 are likely to up 7.6% in fourth-quarter 2025 on 7.7% higher revenues.
More Rate Cut Hope
The Fed lowered the benchmark lending rate by 75 basis points in 2025 after lowering it by 1% in 2024. The current Fed fund rate is in the range of 3.50-3.75%. Market participants are hopeful for two more rate cuts of 25 basis points each in 2026. The CME FedWatch interest rate derivative tool currently shows the first rate cut as likely to happen in April with a probability of nearly 60%.
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A strong balance sheet position and revenue growth will likely support Deutsche Bank's financials. Also, the company’s strong liquidity profile aids sustainable capital distribution moves.
EPAM serves the fastest-growing segments of the IT services market where there is significant scope for growth. Acquisitions and collaborations have allowed it to expand its TAM and diversify its product portfolio.
KLA is a major player in each of its served markets. The company offers complete yield management solutions, including hardware, software and services that reduce production cost.
Virtu Financial’s solid strength in the Execution Services segment augurs well for the long haul. Its capital position and rising profitability also impress.
Ulta Beauty’s differentiated model, which uniquely combines mass, prestige and luxury beauty under one roof, continues to support consistent demand across categories and channels.
Olin's Epoxy segment is exposed to headwinds from weak economic conditions in Europe & China. It also faces headwinds from higher costs, pressured margins and penalties.
Carter’s profitability came under pressure in third-quarter 2025, with margins squeezed by tariffs and rising SG&A costs despite ongoing efforts to control expenses and protect brand strength.
Broadcom is a leading player in the semiconductor market based on its expanding product portfolio, multiple target markets, accretive acquisitions and strong cash flow.
Kroger drives growth with digital expansion, private label success, fresh offerings and strategic partnerships, while investments in AI and value creation fuel long-term scalability.
AT&T is witnessing early momentum in its core market areas driven by strength in 5G and fiber, as it aims to better harness edge computing capabilities with core business focus.
Strength across all product groups is a positive catalyst for Edwards Lifesciences. The company’s bullish long-term growth strategy buoys optimism on the stock.
Align Technology’s robust product line, balanced growth across all channels and consistent focus on international markets to drive growth bolster our confidence in the stock.
Intel’s leading position in PC market, strength in servers, growing clout in software, IoT & ADAS domains and headway in process technology are positive indicators of future growth prospects.
