Wall Street Debate: Christmas Rally or the 2000 Dot-Com Bubble Revisited?

Original author: Xu Chao

Source: Wall Street Journal

As the Federal Reserve pauses rate hikes and tech giants release their earnings reports, Wall Street stands at a historical crossroads: Will seasonal bullish patterns hold true again, or is the ghost of the 2000 tech bubble burst reemerging?

Deutsche Bank and BTIG have recently revisited historical data this week, reaching entirely opposite conclusions. Deutsche Bank, citing nearly a century of market data, points to the seasonal momentum typically seen around year-end Christmas rallies; meanwhile, BTIG’s Chief Technical Strategist, Jonathan Krinsky, uses the 2000 collapse of the Philadelphia Semiconductor Index as a template, warning that the market is approaching a downward turning point.

The clash between two narrative frameworks is forcing investors to confront this year’s most difficult directional decision. Krinsky’s core argument is not about the financial numbers themselves, but about the "re-reaction to market responses"—he believes this rally lacks genuine position liquidation, and the complacency in the options market has yet to dissipate, sharply contrasting with the characteristics seen before every previous market bottom.

Jim Reid of Deutsche Bank, citing S&P 500 data since 1928 in this week’s Daily Chart, noted that the S&P 500 typically makes its final low around October 27, after which it is "essentially one-way upward for the rest of the year on average."

Reid further cites research by peers Binky Chadha and Parag Thatte: in 21 out of the past 23 midterm election years, the S&P 500 rose over the three months following its early October low. The logic is that election-related uncertainty fades, equity assets have already undergone a correction, and political gridlock is often viewed favorably by markets.

Reid described the 2026 price movement as a "milder version" of the midterm election script—the S&P 500 reached a new all-time high on May 29, rising about 11% for the year, yet only less than 1% below that peak five months later. His conclusion carried a festive tone: "Seasonal patterns are not destiny; concerns over Iran, artificial intelligence, and France won't magically disappear. But if history is any guide, today is often when the Christmas rally begins to warm up."

However, Reid also provided a clear risk warning: the average masks significant dispersion—1962, 1974, 2002, and 2022 were all midterm election years that ultimately turned into bear markets. In 2002, in particular, it was the year the 2000 tech bubble finally hit its bottom.

Krinsky began tracking the historical simulation of the 2000 Philadelphia Semiconductor Index (SOX) as early as September. He noted that after the SOX peaked on March 14, 2000, some individual stocks continued to reach new highs, but the index itself never recovered—closely mirroring this year’s pattern. In the 2000 version, the SOX dropped from around 1,200 points in early September to approximately 540 points in early December, a decline of over 55%, with no relation to the Christmas rally.

The template briefly deviated last week, but Krinsky believes it has returned to track this week. He expects the SOXX (semiconductor ETF) to continue a modest rebound over the next few days to the 550–570 range, followed by a sharp decline around the mid-November election week. He admits, "This may be the most contrarian view in the market right now, which is precisely why we place greater emphasis on it."

From a technical perspective, SOXX has found support near its 200-day moving average, but Krinsky is uncertain whether this level will hold. He believes SOXX will ultimately face resistance around $475, near the 200-day moving average. Bloomberg Candle Sessions’ technical count indicates that the ETF triggered a 10-count low last week and is currently in the third count of an upward move, with an expected exhaustion signal for upward momentum likely to reappear within the next 4 to 7 trading days—timing that coincides precisely with the midterm election week.

Krinsky's core analytical framework is that a true bottom rebound requires a prior sufficient "cleansing." He believes the current market is far from meeting this condition.

From a sector perspective, among the eleven sectors of the S&P 500, only the Communication Services sector currently has a Relative Strength Index (RSI) below 49. In comparison, on March 31 of this year, only three sectors had an RSI above 50—the degree of oversold conditions between the two periods is vastly different.

The options market also shows no signs of panic. The current 20-day put/call ratio for equities is 0.59, and the total put/call ratio is 0.87, compared to approximately 0.67 and nearly 1.0 around the market’s true low in March this year. Krinsky’s conclusion is that the hedging positions typically surge before a genuine market bottom, but this time, they have not been purchased at all.

A certain level of "cleansing" has indeed occurred at the hedge fund level. According to Charlie McElligott of Nomura, around 100 multi-strategy fund managers exited during October’s AI "growth panic" and momentum factor unwinding, while others purchased approximately $1.6 billion in delta of Mag7 call options on the day of the Fed’s interest rate decision. However, Krinsky argues that this itself highlights the issue—the cleansing is still ongoing, and new bets have already entered the market.

So far this earnings season, two large-cap tech companies' earnings reports have failed to provide a "cleansing" effect, instead validating Krinsky's concerns.

Microsoft rose about 6% after hours, driven by stronger-than-expected Azure cloud revenue, but order and backlog figures were modest. Google’s stock plunged about 8%, hitting its lowest level since April, as both revenue and profits missed expectations; Google’s free cash flow has now been negative for a second consecutive quarter, joining Meta on the list of companies investors are reluctant to fund for AI capital expenditures.

The earnings report from South Korean memory chip giant SK Hynix was one of the few positive cases this quarter, significantly boosting sentiment in related sectors. Krinsky acknowledged that this was, to some extent, a genuine short-term cleanup event—SK Hynix had previously experienced a decline of approximately 33%. He believes its stock price could rebound to around $180, but will likely face pressure again afterward.

In addition, this Fed meeting failed to provide directional guidance. The Fed paused rate hikes as expected, but Hammack and Lisa Cook unexpectedly voted in favor of a hike, and the Fed Chair held a hawkish press conference afterward—yet markets still rose. Notably, the Fed has now incorporated AI-related memory demand into its inflation assessment framework—meaning the current storage-driven rebound in semiconductors has, to some extent, become a potential variable in the Fed’s monetary tightening policy.

The divergence between the two narratives ultimately comes down to a methodological question: Can statistical patterns from 1998 average data overcome a single, highly aligned historical simulation?

Deutsche Bank's data relies on sample size, but as Reid himself warned, averages obscure extreme scenarios. Krinsky’s counterargument hinges on the fact that the statistical premise of an average year does not hold in 2026—the S&P 500 is less than 1% away from its all-time high, the options market shows no signs of panic, only one sector is oversold, and both flagship tech earnings reports were sold off. When most people are citing the same Christmas rally chart, the liquidation effect has already been consumed by the expectation itself.

Under this framework, the clearest path for the current market may be: SOXX completes its final leg of a rally within the next few days, reaching the 550 to 570 range, followed by a directional reversal around the midterm election week. However, if Microsoft’s rally continues and Google’s decline is supported tomorrow, there’s still room for a reversal in the Christmas rally script. The answer may already be revealed in Friday’s closing price.