S&P 500 correction looms as it tests record highs in final days of 2025

The S&P 500 Index (SPX) is approaching the end of 2025 at record highs, hovering around $6,930. Resilient economic data from the United States, alongside growing expectations of further monetary easing in 2026, have been key drivers in recent days. The stock market has also derived support from a moderate decline in inflation, three consecutive rate cuts by the US Federal Reserve (Fed) this year, and traders’ unwavering belief that corporate earnings—led by the AI sector—continue to rise.

However, a long-term rally may lead the S&P 500 Index into a correction. The chances of this scenario are increasing. Prices have gained almost 18% over the past eight months—the longest advance since 2018. The Santa Claus rally could underpin SPX until around January 5, but its effect may be unreliable, as evidenced by the last two years. The market has largely exhausted this year’s momentum, and investor focus is now shifting toward AI earnings forecasts for 2026. Given the current low trading volumes and elevated prices, even a minor negative factor may cause an avalanche.

The technical setup also raises cautiousness. The S&P 500 keeps moving in the uptrend, but signs of overbought conditions are in place, suggesting a potential short-term correction or consolidation. The Stochastic Indicator confirms this picture, with its %K and %D lines above 80 and crossing. This is a clear signal of waning buying momentum. Meanwhile, the Chaikin Oscillator remains in positive territory, pointing to continued bull’s control over the market and position accumulation on upward trending. However, this movement is slowing. This is another confirmation of buyer exhaustion, consistent with the Stochastic overheated reading.

Pay attention to the following trading plan:

Sell SPX at the current level to lock in profits near record highs. Place a Take profit order at $6,830. Set Stop loss at $6,990.

This forecast remains relevant from December 29, 2025 to January 5, 2026.