What to Expect from Markets to Open 2026

We are closing out 2025 with a ‘risk appetite’ drive in comfortable control – despite a myriad of fundamental concerns amongst market participants. What should we expect from conditions in the transition into 2026 and what fundamental themes should we expect to pick up the torch? 

Talking Points:

• Historically, the benchmark S&P 500 faces a serious dip in volume and volatility in these final weeks of the year, but the outlook points to one that is more active
• While most markets are carving out a course of moderation to let traders rest, silver is pushing its record-breaking drive with momentum
• Looking out to the new year, it is important to focus on the themes that carry the greatest potential for guiding market volatility and trend: and we cover the most overt risks

The Height of the Seasonal Lull and Its Upswing

We are fully in the throes of the seasonal distortions in the financial markets. In the last full week of trade for the calendar year – the third week of December – the economic docket offered up a few top shelf and systemically relevant updates to help shake off the downshift in momentum and volatility that kicked in around the United States’ Thanksgiving holiday. Yet, they would fall short of overriding the throttling influence of complacency with risk assets drifting near record highs. History suggests that the conditions that we can expect over the coming few weeks will very likely reinforce the quiet that we have experienced. 

Using the S&P 500 as a speculative and sentiment benchmark, the 52nd week of the year is defined by the lowest volume of any other stretch and the 1st week of the year carries the second lowest turnover. Volatility-wise (referencing the VIX), activity bottoms before taking a turn into Winter recovery that peaks around the 12th week. In terms of performance, the index has averaged gains through this stretch with a smaller distribution of performances – as meaningful losses are significantly less frequent. 

Historical Average S&P 500 Change and Volume by Calendar Week  

Source: John Kicklighter, Standard & Poor’s

 

Looking back over just the past 10 years, Christmas week has averaged exceptionally small moves in absolute terms – though there were very modest declines in some years week-over-week. The exception was 2018 when the S&P 500 registered an impressive 2.8 percent rally over the holiday week, but that can be a development attributed to the preceding three weeks more than 12 percent tumble. Moderation relative to such a tempo carried a bigger rebound. 

A word of caution is necessary when we look to these norms and assume complacency is predictable. With thin liquidity conditions, strong jolts to sentiment can generate sharper moves as there is less of a market to absorb the repositioning that can occur in that environment. And, given fear is the stronger and more unifying motivator compared to ‘greed’ (the other end of the sentiment spectrum); strong bearish developments carry the higher probability of these outlier scenarios.

S&P 500 Index with 12-Week Historical Range Percentage and ATR Volatility (Weekly) 

Source: John Kicklighter, TradingView.com, Standard & Poor’s

 

 

Looking a little further out into the distance, the opening weeks of the new year typically see a rebound in volatility and quick normalization of volume as markets get back to the activity of deploying capital effectively. The month of January averages a meaningful bullish advance over the past 75 years; but in the past 20 years, it moderates to virtually no change. Given that we are coming out of a period of potentially five or six weeks of tepid activity, it could prove a slow start without a clear fundamental charge to take up the banner of market interests. It is also possible that the moderating tempo after a strong bull trend in the recovery move of April through December, could offer a foothold for exhaustion similar to the open of 2018, 2020 and 2022.

Historical Average S&P 500 Change and Volume by Calendar Month 

Source: John Kicklighter, Standard & Poor’s

 

A Lull and Then Return to What…?

Over the next few weeks, through the twin holiday drains of Christmas and New Years, there is a smattering of event risk that will factor into the assessment of longer term fundament trends. However, there is nothing that stands out prominently enough as a lurking catalyst for volatility that can override the low liquidity status we are facing. That said, it is worth shifting our focus out to the start of the new year to see what events and themes could potentially shake loose the cobwebs and either restore the climb from the likes of the S&P 500 or otherwise tip confidence into an overdue correction.

Calendar of Top Global Macro Event Risk
 
Source: John Kicklighter

 

Monetary Policy is Withdrawing its Support of Speculative ‘Risk On’

Remarkable through the end of this past year was the lack of market moving influence drawn through monetary policy. The Bank of England cut its benchmark rate, the European Central Bank suggested its easing phase was done, the Bank of Japan hiked rates as a major outlier while the Federal Reserve gave a very controversial mixed bag (rate cut, restart of QE and suggestion of only one further reduction in 2026). Broadly speaking, it seems that the average for the developed world is for the easing cycle to essentially have come to its end. 

For capital markets, that would mean less accommodation moving forward and more recognition around the standing of speculative assets based on other fundamental footings - which are less than inspiring. The central bank calendar nearly empty for most of the year (eg the FOMC on January 28th and BOJ on the 23rd), but this theme will be stirred by speculative interests and fresh readings of data like nonfarm payrolls and the consumer price index (CPI), which are expected to normalize for the US after the distortion from the government shutdown.

Chart of Relative Monetary Policy Standing

Source: John Kicklighter 

 

Consumer Confidence in the US is Bouncing Along Record Lows

In the absence of monetary provocation and questions over the veracity of data, the focus remains on the sentiment of engines of economic activity and financial stability. We can reflect on the perceptions of governments, businesses or even supranational groups (like the IMF’s January WEO update); but the consumer is arguably the most important read for us to take in. Further, the US consumer is singularly one of the largest contributors to expansion on the planet. That said, the Conference Board’s consumer sentiment report is due this coming week. Yet, the University of Michigan’s reading will draw more attention owing to its proximity to its series’ low and earlier release with January’s preliminary reading due during ‘normal’ liquidity conditions on January 9th.

Chart of US Consumer Confidence and Official US Recessions (Monthly)

Source: TradingView; University of Michigan, NBER; John Kicklighter

 

Another US Government Shutdown?

Finally, more of an outlier risk to track – and again, in the US sphere of influence – is the possibility of another budget cliff come the end of January. The continuing resolution that reopened the US federal government funded activity through January 30th. From there, if a full appropriations is not approved by that point or another temporary CR struck, the largest country in the world may face a budget cliff and shutdown. With the contentious ACA subsidies due to expire on December 31st and higher health care costs set for a large swath of Americans, the pressure of action from Washington will escalate materially. 

At present, betting markets put the probability of another US government shutdown at 30 percent, but the risk is acute relative to the still-moderate chance. The shutdown from October 1st to November 12th seemed to render modest fallout for the markets outside the Dollar’s struggles, but that is likely to change if the country falls into technical arrears and throttles spending of federal workers once again.

Probability of US Government Shutdown Jan 31st in Betting Markets 

Source: Kalshi.com

 

-- Written by John Kicklighter, Global Head of Content

 

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