Year-end momentum is a strange animal: signals look clean, participation is low, and price can move on mechanics rather than conviction. Today’s read is about what’s actually driving the tape as we cross from 2025 into 2026.
Multiple market notes flagged year-end funding and short-term money market pressures around Dec. 31. Even when things stay “orderly,” higher overnight rates and thin depth can change intraday behavior — sharper fades, wider spreads, and faster rotations.
Rule of Year-End Momentum: If the move looks effortless, assume liquidity is doing the work — and the first January catalyst can test it.
As 2025 closes, the market is still leaning on a familiar leadership stack: tech-heavy index weight, AI-linked exposure, and duration-sensitive growth. That doesn’t mean it’s wrong — it means the trend is more sensitive to rates than most investors want to admit.
Into early January, the “momentum break” scenario is simple: a yield pop forces de-risking in the most crowded winners. The “momentum extension” scenario is equally simple: yields stay stable and the market lets seasonality drift do its thing.
Stable yields, concentrated leadership, reduced selling pressure, “clean” holiday tape.
Rates breakout, liquidity returning + de-grossing, January data resets narrative quickly.
Into the turn, momentum is less about chasing candles and more about understanding the setup: narrow leadership + rate sensitivity + liquidity transition. The best tell in early January will be whether breadth improves when real money comes back online.