December is a month when everyone, including investors, slip into holiday mode. However, historically, it has been among the strongest for equities. Since 1950, the S&P 500 has risen in roughly 81% of Decembers when entering the month in positive territory for the year, with an average gain of just over 2%, according to a recent Bank of America analysis. When that setup coincides with the first year of a United States (US) presidential cycle, December has been positive 100% of the time across 13 occurrences. The so-called Santa Claus rally – the final five trading days of December and the first two of January – has delivered positive returns nearly 79% of the time, averaging gains of 1.3%.
This year, the seasonal setup is supportive. The S&P 500 is up more than 16% year-to-date, corporate earnings grew over 13% in the third quarter, and more than 80% of companies beat analyst expectations. Yet this year, strategists are cautious.
A Fed uncertain about its next move
The US Federal Reserve’s (Fed’s) December meeting on 9 and 10 December is the dominant event of the month and market pricing has swung sharply. As recently as mid-November, futures implied near-certainty of an interest rate cut. That probability collapsed to around 30% shortly thereafter, following hawkish commentary, before rebounding to approximately 80% this week after dovish remarks from Fed Governor, Christopher Waller and New York Fed President, John Williams.
The swings reflect the division within the Federal Open Market Committee (FOMC). October FOMC minutes revealed that members had “strongly differing views” on whether to cut or hold rates steady and the rare double dissent at that meeting – one official pushing for a larger cut, another for no change – marked one of the deepest internal splits since 1992.
The data picture offers little clarity. Inflation remains above target at 3%, while the labour market has softened. A prolonged government shutdown created gaps in official releases, leaving policymakers flying blind on key October data. The Fed is making decisions without complete information at a moment when the wrong signal could unsettle markets heading into year-end.
For equities, the risk is skewed to the downside. A cut is largely priced in but a hawkish surprise is not. A hold, accompanied by cautious guidance, could trigger a sharp repricing in rates and a pullback in risk assets – precisely the outcome seasonal patterns are supposed to protect against.
Thin liquidity can amplify moves
The second risk is structural. As the month progresses, trading desks thin out, institutional participation fades, and liquidity deteriorates. You can see it in order-book depth and bid-ask spreads, which widen predictably into the holiday period.
The danger is that reduced liquidity amplifies moves in both directions. Good news can fuel a sharp rise in asset prices, while bad news can trigger outsized drawdowns. This year, conditions are more fragile than usual. Treasury market liquidity (the ease with which bonds, bills and notes can be traded without significant price moves) deteriorated sharply around the April tariff announcements. While standard liquidity metrics had largely normalised again by August/September, Fed researchers still flag the market’s vulnerability to periodic disruptions as US debt issuance grows.
In addition, equity market breadth has remained narrow. While index levels look healthy, they mask a market where a handful of mega-cap technology and AI names are doing most of the heavy lifting, leaving the average share far less robust and the broader market more vulnerable to a wobble in the leading tech stocks – as witnessed in November.
The case for caution
None of this, however, means December will disappoint. The base case still favours gains: a Fed that cuts, liquidity that holds, and positioning that supports a move higher into year-end. Fundamentals are sound, earnings growth is above trend, credit conditions are favourable, and there is no imminent recession signal.
But the range of outcomes is wider than averages imply. Last December, the S&P 500 fell on every trading day between Christmas and New Year – the first time that had happened in the index’s history. We must remember that seasonal patterns are tendencies, not guarantees.
The message is straightforward. Respect the seasonality, but do not rely on it. Position sizing, rebalancing, and downside protection matter more when liquidity is thin and the Fed is divided. As the saying here at Citadel goes – the future will surprise – it is with that in mind that December favours discipline over conviction.
TURNING TO THE MARKETS
The week’s key themes:
- South African bonds eye Moody’s rating announcement
- Wall Street digests data as it awaits next week’s Fed interest rate decision
- Oil climbs to two-week high with the US and Venezuela tension in focus
- Rand breaks through R17.00/$ amid dollar declines
Bonds
US Treasury yields recovered to 4.08% on Thursday, reversing the previous session’s decline as investors assessed the Fed’s monetary policy trajectory. Weak US employment data has reinforced expectations for a 25-basis point December cut after ADP payrolls unexpectedly contracted while Challenger job cuts surged 25% year-on-year. However, persistent inflation concerns continue to support yields, with Treasury feedback revealing market anxiety that the incoming Fed chair might pursue excessive easing to satisfy President Trump. The US also ended its quantitative tightening programme on 1 December, though primary dealers anticipate increased short-term bill purchases to ease funding-market pressures. The Personal Consumption Expenditures (PCE) Index reading, due out later today, will be watched closely for further rate guidance.
United Kingdom (UK) gilts rallied to 4.45%, suggesting Rachel Reeves’s budget has defused immediate market tensions. Analysts believe yields could rise a full percentage point before straining fiscal headroom, while deflationary budget measures may enable further Bank of England (BoE) cuts. A 25-basis point reduction is expected in December.
German Bunds held at 2.75%, a two-month high, after the eurozone Purchasing Managers’ Index (PMI) was revised up to 52.8 and November inflation printed slightly hotter at 2.2%. Markets continue pricing in the European Central Bank (ECB) keeping rates steady throughout 2026.
South African bonds have surged into year-end, with the 10-year benchmark reaching 8.3% to 8.4% – its lowest yield since early 2021 after exceeding 11% over the past year. S&P’s November upgrade accelerated the rally beyond strategists’ 8.5% targets. Attention now shifts to the Moody’s announcement later today.
Equities
Wall Street futures traded flat early this morning ahead of crucial inflation data that could influence Fed policy direction. The US Commerce Department will release delayed September PCE figures – the Fed’s preferred price measure – alongside consumer spending and income data. Labour market signals remain mixed as the ADP reported an unexpected 32,000 decline in private payrolls while Challenger tracked 71,321 November layoffs, though weekly jobless claims eased to around 191,000. Thursday’s trading session saw the Dow edge down 0.07% while the S&P 500 and Nasdaq gained 0.11% and 0.22%, respectively. After hours, technology companies, Hewlett Packard Enterprise and SoFi Technologies, dropped 9% and 6% on disappointing updates.
London’s FTSE 100 rose 0.2% to 9,711, snapping a four-day losing streak as Fed rate cut expectations firmed. Retailers, Burberry and JD Sports led gains while defence companies, Rolls-Royce Holdings and BAE, extended defence sector momentum.
Frankfurt’s DAX climbed 0.8% to a three-week high of 23,882, driven by automakers after Bank of America upgraded its 2026 outlook and Brussels signalled potential reversal of the 2035 combustion engine phase-out. Vehicle manufacturers, Porsche and Daimler Truck, both jumped 5.8%.
The JSE traded choppily, with the JSE FTSE All Share Index down 0.9% week-to-date near 110,925, while the JSE Top 40 Index is hovering near 103,200, also marginally lower on the week after a 1.1% rally on Monday and declines on Tuesday and Thursday.
Commodities
Gold has retreated below $4,200/ounce, bouncing between green and red during the week, as markets awaited critical US data ahead of next week’s Fed rate decision. The delayed September PCE report, due later today, could provide clarity on the easing trajectory after the week’s labour market data pointed to a softer environment. These figures have raised December rate cut expectations to approximately 87%, with speculation that Kevin Hassett could replace Jerome Powell in May 2026 as Fed Chair, adding to bets on more aggressive easing. Gold remains on track for a modest weekly loss.
Brent crude is holding around $63.3/barrel, sitting at a two-week high and heading for weekly gains on elevated geopolitical risk. Trump’s signals of imminent action against Venezuela have raised concerns over the country’s 1.1 million barrels-per-day output, according to global research company, Rystad Energy. Stalled US-Russia talks in Moscow dimmed prospects for restored Russian supply, while Ukrainian strikes on energy infrastructure continue. Fed easing expectations provided additional support by potentially boosting demand through stronger economic activity. However, gains remained capped by oversupply concerns as Saudi Arabia cut its January Arab Light price for Asia to a five-year low, while Canadian crude weakened to levels not seen since March.
Currencies
The US Dollar Index is holding near 99 but remains set for a second consecutive weekly decline amid mounting expectations that the Fed will cut rates. Markets assign an 87% probability to a December quarter-point cut, with two to three further reductions anticipated next year. Speculation that Kevin Hassett could succeed Powell in May has reinforced the dovish outlook. Weekly jobless claims dropped to a three-year low, though Thanksgiving distortions clouded the reading, while November layoffs reached 71,321, their highest level for a November since 2022. Attention now turns to delayed September PCE data.
The euro has strengthened above $1.165/€ to its strongest level since mid-October after eurozone composite PMI was revised up to 52.8, marking the strongest private-sector expansion since May 2023. With inflation steady at 2.2% and economic activity resilient, the ECB is expected to hold rates through 2026 – contrasting sharply with anticipated Fed cuts.
Sterling has extended gains toward $1.33/£, its highest level since late October, supported by an upwardly revised services PMI of 51.3. The BoE is expected to cut rates in December before pausing on inflation concerns.
Yesterday, the rand broke below R17.00/$, touching R16.94/$, its strongest level since early 2023 and roughly 15% firmer than April’s R19.90/$ peak. The move extends November’s rally following improved fiscal messaging, dollar weakness, attractive carry yields, and renewed confidence in the credibility of the South African Reserve Bank. While some of the gains were erased as we headed into this morning, the rand is just below 1% stronger for the week.
*All information is at the time of writing.
Please note that the last edition of the Weekly Wrap for 2025 will be published next week, 12 December. Publication of the Weekly Wrap will resume on 16 January 2026.
Key indicators:
USD/ZAR: 16.95
EUR/ZAR: 19.76
GBP/ZAR: 22.63
GOLD: $4,227.42
BRENT CRUDE: $63.20
Sources: Bank of America/Inc.com, FactSet, Federal Reserve, Liberty Street Economics, Morningstar and Stock Trader’s Almanac/LPL Research.
Written by: Citadel Advisory Partner and Citadel Global Director, Bianca Botes.