The Dow Jones Industrial Average saw a decline on the final trading day of 2025. While the S&P 500 and Nasdaq Composite also fell, the year’s performance remained strong. The S&P 500 is set for a 17% rise, marking its third consecutive year of double-digit gains. The Nasdaq increased by 21%, driven by enthusiasm for artificial intelligence, while the Dow Jones saw a 13% rise due to lower technology stock exposure.
December Market Insights
December proved profitable for equities, with both the Dow and the S&P 500 on track for their eighth consecutive winning month. The Nasdaq remained flat, suggesting selective gains. Mixed updates from corporate and economic fronts presented a generally stable environment. Nike saw share price increases, while labour market data indicated resilience with initial jobless claims falling to 199K.
Artificial intelligence continued to impact market narratives, although returns in technology sectors varied. Alphabet saw over 65% gains, while Amazon struggled. Commodities showed notable gains, with gold climbing over 64% and silver exceeding 140%. This shift suggests future returns may rely more on traditional fundamentals.
The Dow Jones, established by Charles Dow, is a price-weighted index comprising 30 major US companies. Its performance can be influenced by company earnings, macroeconomic data, interest rates, and inflation. Different trading methods, including ETFs, futures, and options, allow for exposure to the Dow Jones Index.
The market’s slight pullback at year-end, despite a very strong 2025, suggests potential choppiness for January 2026. We’ve seen an impressive eight-month winning streak for the S&P 500, a run that historically can lead to consolidation. With the CBOE Volatility Index (VIX) hovering near a low of 12, buying call options on the VIX could be a cost-effective hedge against a sudden market downturn.
Commodities Versus Technology Stocks
We should pay close attention to the divergence between surging commodities and mixed technology stocks. While the Nasdaq was flat in December, gold has posted an incredible 64% gain this year, a performance not seen since the high-inflation era of the late 1970s. This suggests traders could use options to create spread positions, such as going long on commodity ETFs like GLD while considering puts on technology funds like QQQ to play this rotation.
The strength in the labor market, with initial jobless claims recently falling to 199,000, will put a sharp focus on the upcoming January jobs report. This data will be critical for the Federal Reserve’s interest rate decisions in the first quarter of 2026. We can use options straddles on index ETFs like SPY or DIA ahead of the report to profit from a large market move, regardless of whether the news is surprisingly strong or weak.
After a 17% gain in the S&P 500, we must consider that valuations are now elevated, with the index’s forward price-to-earnings ratio sitting at 21, above the ten-year average. For those holding significant long equity positions, this is a good time to protect gains from 2025. We can do this by purchasing protective put options on major indices or by implementing collar strategies, which involve selling call options to finance the purchase of puts.
