The US stock market declined modestly midweek, but the broader picture for investors remains one of a strong year nearing its conclusion. The S&P 500 slipped about 0.2% on Wednesday, matching the decline in the Nasdaq Composite, while the Dow Jones Industrial Average fell about 0.5%. The market has been in a slight decline for three sessions, yet the losses have not detracted from the impressive annual performance. The S&P 500 is on track to gain nearly 17% in 2025, its third consecutive double-digit gain, while the Nasdaq has climbed nearly 21% on continued enthusiasm for artificial intelligence. The Dow has lagged somewhat behind with a 13% gain, reflecting its reduced exposure to technology stocks.
From a seasonal perspective, December has been a good month for equities. Both the Dow and S&P 500 are on pace to finish the month higher, each posting their eighth consecutive winning month, a streak not seen since 2018. However, the Nasdaq has been broadly flat for the month, underscoring the more selective nature of recent gains.
Corporate and economic updates presented a mixed but generally stable backdrop. Nike (NKE) shares jumped after several insiders, including board members and the CEO, increased their stakes after a difficult year in which the stock fell more than 17%. On the macro front, labor market data pointed to continued resilience. The number of initial jobless claims fell to 199K in the latest week, well below expectations, while continued claims also declined, reinforcing the picture of a low-hiring, low-firing environment as the year ends.
Despite strong finish, stocks had a bad start
The strength signals a sharp recovery from the turmoil seen in early April, when sweeping tariff announcements triggered a near-bear market collapse that sent the S&P 500 down nearly 19% from its February high. Since then, investors have come to believe that trade policy lessons have been learned and that companies can adjust supply chains and pricing to protect margins. Still, the recent softening has raised some concerns, as the last trading days of the year and the first of January are typically associated with the so-called Santa Claus rally. The current period of profit taking could also be an early indication of future volatility. While many strategists expect another positive year for stocks in 2026, there is growing debate over whether returns will be more range-bound as earnings growth works to justify lofty valuations.
Artificial Intelligence continues to shape market narratives, although its impact has become more subtle. After blockbuster gains linked to the emergence of generic AI in 2023 and 2024, the lead extended into 2025 and performance within the largest technology stocks diverged. Alphabet stood out with gains of more than 65% as investors positioned it as a major AI beneficiary, while Amazon lagged behind with a much more modest gain. Also, returns outside megacaps improved significantly, with commodities performing exceptionally well. Gold is up more than 64% this year and silver is up more than 140%, putting both metals on track for their strongest annual gains since the 1970s. This shift in market insiders has raised expectations that future returns may depend more on traditional fundamentals than monetary policy or large-scale AI infrastructure spending.
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Dow Jones FAQ
The Dow Jones Industrial Average, one of the world’s oldest stock market indices, is compiled of the 30 most traded stocks in the US. The index is value-weighted rather than weighted by capitalization. It is calculated by adding up the prices of the constituent stocks and dividing them by a factor, which is currently 0.152. The index was founded by Charles Dow, who also founded the Wall Street Journal. In later years it was widely criticized as not being representative enough because it tracks only 30 groups, unlike broader indices like the S&P 500.
Many different factors drive the Dow Jones Industrial Average (DJIA). The main component revealed in the quarterly company earnings report is the overall performance of the companies. US and global macroeconomic data also contributes as it impacts investor sentiment. The level of interest rates set by the Federal Reserve (Fed) also affects the DJIA because it affects the cost of credit, on which many corporations rely heavily. Therefore, inflation could be a key driver as well as other metrics that influence Fed decisions.
Dow Theory is a method of identifying the primary trend of the stock market developed by Charles Dow. An important step is to compare the direction of the Dow Jones Industrial Average (DJIA) and the Dow Jones Transportation Average (DJTA) and only follow trends where both are moving in the same direction. Volume is a confirmation criterion. The theory uses elements of peak and trough analysis. Dow’s theory posits three trend phases: accumulation, when smart money starts buying or selling; Public participation, when the wider public is involved; And distribution, when the smart money runs out.
There are many ways to trade the DJIA. One is to use an ETF that allows investors to trade the DJIA as a single security rather than buying shares in all 30 constituent companies. A prime example is the SPDR Dow Jones Industrial Average ETF (DIA). DJIA futures contracts enable traders to speculate on the future value of the index and options provide the right, but not the obligation, to buy or sell the index at a predetermined price in the future. Mutual funds enable investors to purchase part of a diversified portfolio of DJIA shares and thus provide exposure to the overall index.
