US STOCKS-Wall Street ends year's final session lower but ends 2025 with big annual gains

By Saeed Azhar, Purvi Agarwal and Nikhil Sharma

NEW YORK, Dec 31 (Reuters) - Wall Street's major indexes ended lower in the final trading session of 2025, but notched big annual gains after a roller-coaster year dominated by President Donald Trump's tariff uncertainties and a euphoria around AI-focused stocks.

The S&P 500 .SPX, Dow .DJI and Nasdaq .IXIC posted double-digit gains this year, their third consecutive year in the green, a run last seen during 2019-2021.

The Dow also posted its eighth straight monthly gain, the longest such streak since 2017-2018. The rally was bolstered by an insatiable appetite for artificial intelligence stocks that pushed all three indexes to record highs this year.

According to preliminary data, the S&P 500 .SPX lost 50.37 points, or 0.73%, to end at 6,847.18 points, while the Nasdaq Composite .IXIC lost 178.03 points, or 0.76%, to 23,241.05. The Dow Jones Industrial Average .DJI fell 301.95 points, or 0.62%, to 48,065.11.

On the day, energy stocks .SPNY and tech stocks .SPLRCT slipped. Microsoft MSFT.O, which has among the biggest weights on the sector, was down, and EQT Corp EQT.N fell sharply.

"I do not expect that the last few days will have so much bearing on the performance of the next year, it's perfectly fine in any bull market to have moments of cost," said Giuseppe Sette, co-founder and president of Reflexivity, pointing to profit-taking opportunities when liquidity was low.

Wall Street made a stellar comeback from April's lows when Trump's 'Liberation Day' tariffs sparked a meltdown in global markets, sent investors away from U.S. stocks and threatened growth by clouding the interest rate outlook.

Still the benchmark S&P 500 index's annual gain trails some global indexes, especially the Asia-Pacific ex-Japan measure .MIAPJ0000PUS, which rallied nearly 27% in 2025, as stock investors diversified.

"We expect this broadening of performance to deepen in 2026, both within the U.S. and across international markets," said Jitania Kandhari, Deputy CIO of the solutions and multi-asset group at Morgan Stanley Investment Management.

"The era of narrow winners is giving way to a wider, more globally distributed opportunity set. Equal-weighted S&P looks good relative to cap-weighted S&P."

Wall Street's fourth consecutive session of losses defied expectations for a "Santa Claus rally" in which the S&P 500 typically gains over the last five trading days of December and the first two in January, according to the Stock Trader's Almanac.

Bellwether chipmaker Nvidia NVDA.O - up sharply year-to-date - has been one of the many AI trade beneficiaries, becoming the first publicly traded company to hit a $5 trillion market capitalization.

The communication services index .SPLRCL emerged as the top performer on the S&P 500 this year, powered by a big jump in Alphabet >.

Storage-chip makers such as Micron Technology MU.O, Western Digital WDC.O and Seagate STX.O are set to outperform their S&P 500 peers, having more than tripled in value in 2025.

On the flip side, FMC Corp FMC.N and Fiserv FISV.O were big losers for the year.

The Federal Reserve's monetary policy trajectory will set the tone for global markets in 2026, after recent economic data and expectations of a new dovish Fed chair prompted investors to price in further reductions.

Nike NKE.N gained after CEO Elliott Hill reported that he bought about $1 million worth of shares recently.

Vanda Pharmaceuticals VNDA.O surged after the U.S. Food and Drug Administration approved its drug for the prevention of motion-induced vomiting.

Trading volumes remained thin in the holiday-shortened week, with markets closed on Thursday for New Year's Day.