Stocks Rise as Volatility Eases and Seasonal Flows Support Risk

U.S. stocks closed higher Monday, extending a late-December advance as easing volatility and seasonal trading dynamics helped underpin risk appetite even though it is a shortened trading week.

The Dow Jones Industrial Average rose 227.79 points, or 0.47%, to finish at 48,362.7. The S&P 500 added 43.99 points, or 0.64%, ending at 6,878.49, while the Nasdaq Composite gained 121.21 points, or 0.52%, to 23,428.8. Smaller-cap shares outperformed, with the Russell 2000 climbing 1.13% to 253.62.

Market volatility continued to retreat. The CBOE Volatility Index, often referred to as Wall Street’s “fear gauge,” fell 5.70% to 14.06, hovering near the lower end of its recent range. A declining VIX typically signals reduced demand for portfolio protection and greater investor comfort with equity risk.

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Commodity markets also reflected a constructive tone. Crude oil jumped 2.64% to $58.01 a barrel, while gold advanced 1.90% to $4,470.80, suggesting continued demand for both cyclical and defensive assets. In digital assets, Bitcoin was little changed, slipping 0.04% to $88,188.16 after a volatile intraday session.

Beyond daily price moves, investors are increasingly focused on year-end market mechanics rather than new fundamental catalysts. Seasonal tax loss selling where investors sell losing positions to offset taxable gains,often exerts pressure on underperforming stocks in December. Once that selling subsides, prices can rebound in early January, a pattern commonly known as the January Effect. This dynamic is driven largely by flows and positioning rather than abrupt changes in underlying business fundamentals .

The strength in the Russell 2000 underscored that theme, as small-cap and higher-beta shares, frequent targets of tax-loss selling, led Monday’s gains. With few major economic releases on the immediate calendar and liquidity thinning into year-end, modest shifts in sentiment and positioning can have an outsized impact on prices.

As the calendar turns, traders will watch whether this late-December firmness carries into January or gives way to renewed volatility once normal trading volumes return.