The US stock market is ending 2025 with a familiar mix of strength and tension: major indexes remain near record territory, volatility is subdued, and investors are debating whether 2026 is “more of the same” or a regime shift for US equities. Into year-end, the S&P 500 closed around 6,903 on December 29, 2025, while the Nasdaq Composite closed around 23,415 the same day.
For ObaisCap, a clean way to frame the US stock market right now is: policy is easing, earnings expectations are rising, and positioning is crowded—a setup that can support Wall Street gains, but also amplifies drawdown risk when catalysts disappoint.
1) Snapshot of the US stock market at year-end
A quick scoreboard helps define the current US equity market environment:
- S&P 500: ~6,903 (Dec 29 close)
- Nasdaq Composite: ~23,415 (Dec 29 close)
- VIX (volatility): ~14 (low-to-mid teens)
- Fed policy rate target range: 3.50% to 3.75% after a 25 bp cut (Dec 10 FOMC)
- 10-year Treasury yield: ~4.14% in late December data
Two immediate implications for the US stock market:
- Low volatility (VIX ~14) often signals investor comfort, but it can also mean complacency.
- With the Fed at 3.50%–3.75%, the market is operating with meaningfully lower policy pressure than in prior tightening phases, which can support equity multiples—especially for growth-heavy Nasdaq leadership.
2) The big macro driver: rates, inflation, and the discount rate
In the US stock market, rates are the gravity. On December 10, 2025, the Fed stated it lowered the target range for the federal funds rate by 0.25% to 3.50%–3.75%. That matters because the US equity market is, at its core, a discounting machine: higher discount rates compress valuations; easing financial conditions can expand them.
Inflation still matters, but the debate is increasingly about the “last mile” and persistence. The BEA’s core PCE (ex food and energy) showed +2.8% YoY for September 2025 (with nearby months also in the high-2s). That is not “perfectly solved,” but it’s close enough to keep rate expectations in play—one reason Wall Street continues to look for a constructive 2026.
ObaisCap takeaway: The US stock market is likely to remain rate-sensitive. If yields re-accelerate, the S&P 500 and Nasdaq can rally less on good news and fall more on bad news. If yields drift lower, high-duration equities tend to benefit.
3) Earnings are the fuel: what the market is pricing for 2026
The most important fundamental question for US equities is whether earnings justify current optimism. FactSet’s bottom-up view going into 2026 is clearly upbeat: analysts expect S&P 500 earnings growth of ~15% for CY 2026, with revenue growth around 7.2%. FactSet also notes that multiple sectors are projected for double-digit earnings growth, including Information Technology, Materials, Industrials, Communication Services, and Consumer Discretionary.
This matters because the US stock market has been heavily supported by “growth certainty” narratives—AI infrastructure, software productivity, cloud capex cycles, and resilient consumer demand. If earnings delivery matches the forward curve, the S&P 500 can justify staying elevated.
ObaisCap takeaway: The 2026 setup for the US stock market is an “earnings execution year.” When volatility is low and expectations are high, beats need to be real, and guidance must stay constructive.
4) Market leadership: tech momentum, concentration risk, and rotation
Late 2025 trading reinforces a key truth: the US stock market still moves when mega-cap tech moves. Reuters described year-end weakness tied to declines in heavyweight tech names, even as broader optimism for 2026 remains linked to AI momentum and potential rate cuts.
At the same time, global relative performance is becoming part of the conversation. The Financial Times highlighted that in 2025 the S&P 500 rose ~17.4%, while non-US equities (MSCI ACWI ex-US) gained more, encouraging diversification discussions and renewed sensitivity to “high US tech valuations.”
ObaisCap takeaway: In the US equity market, concentration can be a feature (momentum) and a bug (fragility). A healthy 2026 Wall Street tape likely needs either:
- continued mega-cap leadership plus broader participation, or
- a credible rotation where “the other 493” contribute meaningfully (not just a few names).
5) Volatility and liquidity: calm surface, moving parts underneath
With the VIX around the mid-teens, markets look calm. But liquidity dynamics can still matter—especially around quarter-end and year-end.
Reuters reported that banks tapped the Fed’s standing repo facility at elevated levels amid year-end pressures, borrowing about $25.95B on a single day, and noted that the facility lends at the top policy rate (3.75%). This doesn’t automatically equal “stress,” but it’s a reminder that plumbing issues can appear even when index volatility looks contained.
ObaisCap takeaway: Low US stock market volatility does not eliminate liquidity-driven air pockets. Investors should watch funding signals, breadth, and credit conditions—not just the VIX.
6) A practical ObaisCap playbook for the US stock market
This is not investment advice—just a structured way to think about the US stock market and US equities:
A) Base case: constructive but selective
- Rates are lower than peak tightening levels (Fed at 3.50%–3.75%).
- Earnings expectations are strong (~15% for 2026 per FactSet).
- Volatility is low (VIX ~14).
Positioning implication: Favor quality growth and cash-flow durability, but demand valuation discipline.
B) Bull case: AI capex + earnings breadth
- If AI-linked capex and productivity narratives broaden beyond a narrow cohort, the S&P 500 can grind higher with healthier breadth.
C) Bear case: yields up, earnings miss, or policy surprise
- If the 10-year yield rises meaningfully from ~4.1% and/or earnings delivery disappoints, the US equity market can re-rate lower quickly.
7) Key risks ObaisCap is watching
- Earnings reality vs. expectations: 2026 expectations are high; guidance matters as much as results.
- Rate path uncertainty: the Fed describes elevated uncertainty around the outlook even while adjusting rates.
- Concentration and crowding: tech leadership can help until it hurts; late-2025 tape shows sensitivity to mega-cap pullbacks.
- Liquidity “plumbing” events: year-end repo facility usage highlights how quickly funding dynamics can show up.
- Global competition for capital: stronger ex-US returns in 2025 may keep the diversification theme alive.
ObaisCap conclusion: the US stock market enters 2026 with supportive pillars—and tight tolerance for disappointment
The US stock market remains fundamentally supported by easing policy pressure, optimistic earnings expectations, and low volatility. But those same pillars can create fragility: when the S&P 500 and Nasdaq sit near highs and the VIX sits low, the market often demands clean execution and credible guidance.
ObaisCap’s bottom line for US equities: constructive trend, higher selectivity, and respect for rate/earnings shocks.
FAQ
What is driving the US stock market most right now?
For ObaisCap, the biggest drivers are Fed policy expectations (3.50%–3.75%), the path of yields, and forward earnings growth expectations.
Why does VIX matter for the S&P 500?
The VIX reflects expected near-term volatility from S&P 500 options. A low VIX (around the mid-teens) can signal calm, but it can also imply complacency and vulnerability to surprise shocks.
What are analysts expecting for S&P 500 earnings in 2026?
FactSet reports analysts expect ~15% year-over-year earnings growth for CY 2026, with multiple sectors projected to grow.