Holiday Hangover? The Market’s Already Resetting for 2026

Written by David Dodge  

While Everyone’s Still in Holiday Mode, the Market Is Quietly Resetting – And That’s Exactly When 2026 Winners Are Made

It’s December 27, 2025. The house is probably still a mess from Christmas—wrapping paper in corners, leftovers in the fridge, and that one string of lights that keeps blinking even though half the bulbs are out. You’re scrolling through your phone in sweatpants, maybe nursing a coffee, while the kids play with new toys or the family naps off the turkey coma.

And somewhere out there, the stock market is already moving on without you.

Not in a dramatic, headline-grabbing way. No crashing or mooning. Just quiet shifts. Big money rotating positions. Some stocks getting dumped for tax reasons. Others quietly accumulated by institutions who know this “dead week” between Christmas and New Year’s is when a lot of next year’s momentum gets baked in.

I’ve been watching markets for years, and this period never fails to fascinate me. Everyone’s checked out, volumes are thin, and yet… this is when 2026 starts taking shape. The Santa Claus Rally—the last five trading days of the year plus the first two of January—has historically delivered an average gain of about 1.3% on the S&P 500, with positive returns around 79% of the time since 1950 (according to the Stock Trader’s Almanac). It’s not huge, but in a low-volume environment, it can set the tone.

This year feels similar. As of December 26, the S&P 500 was hovering around 6,931 after a tiny dip, but the broader year has been strong—up over 16% in many measures. Tech and AI names have led, but there’s rotation happening under the hood.

If you’re like most people, your portfolio (and your mindset) could probably use a reset too. The holidays bring spending guilt, family reflections, and that vague “new year, new me” feeling. Why not channel it into something useful?

Let’s break this down: the emotional reset you need right now, what the market’s actually doing while we’re all distracted, and a simple playbook to get ahead before everyone else wakes up on January 2.

The Emotional Reset: Why This Week Feels Heavy (And How to Use It)

Christmas is over, and suddenly there’s this weird limbo. The high of gifts and gatherings fades, and reality creeps back in. Bills from holiday spending show up. You think about goals you didn’t hit in 2025. Maybe you overindulged a bit—food, drinks, Amazon cart.

Financially, it’s the same. A lot of us overspent in December. Credit card statements are looming. And if your investments had a rough patch, it stings extra seeing everyone else’s “year in review” posts.

But here’s the thing: this post-holiday dip is natural. Psychologists call it the “dopamine crash” after the buildup and release of the season. It’s uncomfortable, but it’s also clarifying.

This is the perfect time to hit pause and ask yourself some honest questions. Not the big, overwhelming “What’s my life purpose?” stuff. Simple money ones:

1. What money habits am I tired of repeating? (Impulse buys? Ignoring statements?)

2. What felt really good financially this year? (That automatic savings transfer? Paying off a card?)

3. If 2026 felt different, what one change would make it so? (More investing? Less debt? A side hustle?)

I do this every year while the tree’s still up. No pressure—just jot notes on my phone. It rewires your brain from guilt to momentum.

Because emotional clarity leads to better decisions. When you’re calm and reflective (not panicked in a March dip or euphoric in a rally), you make smarter moves. And right now, while the world’s in holiday mode, you have space for that.

What the Market’s Really Doing Right Now: The Silent Reset

Markets don’t take holidays. Trading volumes drop—often the lowest of the year—but that makes moves more meaningful. Big players aren’t distracted.

Here’s what’s happening behind the scenes:

• Tax-Loss Harvesting Winds Down: All December, investors (especially retail investors with new tax apps) have been selling losers to offset gains. It creates downward pressure on underperformers. But as we approach year-end, that selling eases. Beaten-down stocks often rebound in January—the so-called January Effect, where small caps and laggards historically bounce.
• The January Effect has been around since the 1940s, linked to tax selling ending and fresh cash flowing in from bonuses. It’s weakened over time as markets got efficient, but data still shows January as one of the stronger months, especially after the down December.
• Institutional Rebalancing and Window Dressing: Funds adjust portfolios to match benchmarks or look good in year-end reports. They trim losers, add to winners. This “window dressing” boosts top performers late in the year.

In 2025, we’ve seen this in AI-related names. Even with some late-year chop, institutions have been rotating into high-conviction areas like tech infrastructure.

• Bonus Cash and Fresh Start: Year-end bonuses hit accounts soon. 401(k) contributions reset. People get motivated and invest. It’s psychological, but real money flows in early January.
• The Santa Claus Rally Window: We’re right in it. Historically, the S&P averages 1.3% gains here, positive 76-79% of the time. In 2025, after a solid year (S&P up ~18% YTD in some reports), thin trading could amplify moves.

Looking back: In late 2023, AI stocks like Nvidia were quietly accumulated before exploding in 2024. Similar in 2024 with communications and discretionary sectors leading.

This year? Small caps look undervalued (trading at a 15% discount per some Morningstar data as of late November). Energy and tech also discounted. With rate cuts likely continuing into 2026, growth areas could shine.

Point is: While retail investors are offline, pros are positioning. If you wait for January headlines, you’re buying what they already own—at higher prices.

(For more on the Santa Claus Rally history: https://www.investopedia.com/terms/s/santaclauseffect.asp)

Your Personal Reset Playbook: 5 Things to Do This Week

You don’t need to overhaul everything. Small actions now compound big.

1. Run a Quick Money Audit (10-15 minutes)
Log into accounts. Check December spending—where did the money go? Look at investment balances. Note winners and losers. No judgment, just data.
Tools like Mint or your brokerage app make this easy.

2. Pick Your 2026 Money Theme
Keep it simple: “Build” (aggressive investing), “Protect” (more bonds/cash), “Grow” (dividends/compound), or “Simplify” (fewer accounts). Mine this year? “Grow steadily”—focusing on consistent contributions over timing.

3. Move Idle Cash
Rates are still decent. Shift sitting money to high-yield savings (4-5% easy) or short-term Treasuries. With potential cuts ahead, lock in now.
Check TreasuryDirect.gov or your broker for easy options.

4. Make One Portfolio Tweak
Sell a loser for tax benefits (if in a taxable account—consult a pro). Add to a conviction holding. Or start small in an undervalued area like small caps (via ETF like IWM).
Not advice—just what many are doing. Remember wash-sale rules if harvesting losses.

5. Write a Letter to Future You
Date it January 1, 2027. What do you want finances to look like? Goals, net worth, feelings. Seal it (or save in notes). It’s motivating—and you’ll thank yourself.

Bonus: Set a calendar reminder for January 6: Review what you did this week. Markets move fast.

From Hangover to Front-Runner: The Mindset Flip

Let’s be real—no one’s judging you for the holiday spending splurge, the extra slices of pie, or the goals that slipped away in 2025. That post-Christmas haze of wrapping paper piles, lingering leftovers, and mild financial guilt is completely normal, and this weird limbo week between Christmas and New Year’s is actually the perfect window for leverage rather than self-criticism. The world has slowed down, distractions are fewer, and there’s genuine space to breathe and reflect. 2025 threw plenty at us—tariff headlines, election volatility, AI hype cycles, and Fed policy pivots—yet the market proved remarkably resilient, with the S&P 500 climbing nearly 18% year-to-date, hitting fresh records just before Christmas amid the early stages of the Santa Claus Rally. Tech and the Magnificent Seven dominated early, but we saw meaningful broadening later into financials, industrials, and small caps, which spent much of the year lagging yet closed strong as lower rates made growth cheaper again. The winners weren’t the ones who chased every headline; they were the ones who stayed disciplined and used quiet moments exactly like this one to position themselves.

This is your chance to flip the hangover into fuel. The market is already resetting—tax-loss selling fading, institutions quietly rebalancing, bonus money about to flow in—while most people are still recovering from holiday mode. Your emotions are perfectly primed for the same shift: ditch the old loops of regret or procrastination and step into simple, intentional action. One quick audit, one clear theme for the year, one small portfolio tweak, or even just writing that letter to your January 2027 self—it all compounds. You don’t need a dramatic overhaul or perfect timing; you just need to move now, while the edge is still quiet and available. Future you will look back and be genuinely grateful you didn’t wait for the calendar to flip. So here’s to closing 2025 strong and stepping into 2026 not just recovered, but truly ahead of the pack. Cheers to the prosperous year we’re about to build.

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