After seven straight months of S&P 500 gains for the first time since 2021 carrying the index back to within 1% of more new all-time highs, solid Black Friday sales and Chat GPT’s third birthday with the Mag 7 names up a collective 300% in that time, markets began December in risk-off mode with profit-taking in vogue.
Cryptocurrencies resumed their brutal plunge on Monday as the Chinese central bank warned against speculation, pulling crypto-related stocks down. The NASDAQ led stocks lower with Big Tech/AI under pressure again. The session ended with blood red across the board for equities and interest rates jumping higher, partly driven by significant rate rises in Japan to their highest levels there since 2008 and partly on growing Kevin Hassett concerns (see below).
A degree of calm returned to markets on Tuesday. Stocks drifted around in a narrow range for most of the day, closing marginally higher. The crypto destroyers took a day off and interest rates stabilized. It was still unclear if stock traders are truly having second thoughts about a traditional Santa Claus rally or whether they are just perhaps biding their time until later in the month.
Stocks marched north on Wednesday led by Small Caps and the indexes closed in the green again after the ADP employment report indicated continued weakness in the labor market in a relatively low hire/low fire environment, pretty much erasing any lingering doubts about a third Fed Funds Rate cut of the year later this week, albeit with an expected number of dissenting committee members.
The slightly better-than-anticipated pre-market weeklyJobless Claims report on Thursday still did little to challenge the narrative of labor market deterioration and resulting high confidence in a December rate cut. Stocks essentially flatlined all day, closing unchanged.
On what should have been a Jobs Report Friday (the most updated report now won’t be released until December 16th), all we got was a stale shutdown-delayed PCE inflation report for September. The out-of-date info implied an unchanged inflation rate stuck at around 3% which doesn’t hurt the chances of a Fed rate cut this week but could make more cuts in 2026 trickier as inflation is showing no signs of falling to anywhere near the Fed’s target rate of 2%.
A fourth straight day of gains saw the S&P 500 flirting with more new all-time record highs, but closed out the week just a little shy of the mark.
Bitcoin finally seemed to briefly attract some dip-buying last week after a frightful month. While definitely not a leading indicator for stocks, cryptocurrencies do trade pretty much exclusively on speculative money flows since the entire investment case for owning them is simply because you think someone else will pay more tomorrow than you did today. This differentiates the asset class from stocks which have actual measurable earnings and tangible value. So, while speculators will exit crypto well before stocks, an extended Bitcoin breakdown could be an early warning sign of a broader falling risk appetite. There are also early signs in last week’s rising interest rates (see INTEREST RATES below) that the bond markets are becoming wary that the assumed next Federal Reserve chairman Kevin Hassett may prove to be a spineless Trump glove puppet with a mission to demolish Fed independence from political pressure and advocate for relentless rate cuts on the instruction of the president, regardless of macro-economic and inflationary considerations.
He is already shamelessly lying to the public as part of his job audition, claiming on CBS last week that there are a number of states where average gas prices are below $2.00 per gallon. This is not even close to true and he knows it. According to the most recent official statistics, $2.41 is the lowest in the nation and the national average is $3.00. It was clearly part of a clumsy but deliberate attempt to mislead Americans when it comes to the inflation story.
Leading the US central bank requires really, really good judgement, a high level of trustworthiness, a grasp of real-world economic concerns, a passion for Fed independence and, most importantly, market credibility, respect and gravitas. Current chairman Powell has an abundance of all those qualities, but with Hassett we get literally none of them.
Bond traders will have their say on this one day and a substantial increase in medium and longer term interest rates could easily be the result even with a Fed that stubbornly pushes its own overnight lending rate lower and lower. Watch this space.
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ARTICLE OF THE WEEK ..
Why smart investors choose not to play Wall Street’s active management game. It’s staggeringly simple.
There are really only two reasons why you would want to play the game ..
.. AND I QUOTE ..
“Volatility is like a toll that investors pay on the road to attractive long-term returns.”
Jeff Buchbinder, LPL Financial chief equity strategist
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Technology (two biggest holdings: Nvidia, Microsoft) ⬆︎ 2.4% for the week
Last week’s worst performing US sector: Utilities (two biggest holdings: NextEra Energy, Constellation Energy) ⬇︎ 4.5% for the week
* SPY, a US Large Cap ETF, tracks the S&P 500 index, made up of 500 stocks from a universe of the largest US companies. Its price rose 0.3% last week, is up 17.0% so far this year and ended the week 0.6% below its all-time record closing high (10/29/2025).
* IWM, a US Small Cap ETF, tracks the Russell 2000 index, made up of the bottom two-thirds in terms of company size of a universe of 3,000 of the largest US stocks. Its price rose 0.8% last week, is up 13.5% so far this year and ended the week 0.8% below its all-time record closing high (10/15/2025).
* VXUS, a Global Non-US ETF, tracks the MSCI ACWI Ex-US index, made up of over 8,500 of the largest names from a universe of stocks issued by companies from around the world excluding the United States, in both developed and emerging markets. Its price rose 0.6% last week, is up 27.9% so far this year and ended the week 0.7% below its all-time record closing high (11/12/2025).
INTEREST RATES:
* FED FUNDS * ⬌ 3.875% (unchanged from a week ago)
* PRIME RATE ** ⬌ 7.00% (unchanged from a week ago)
* 3 MONTH TREASURY ⬇︎ 3.71% (3.88% a week ago)
* 2 YEAR TREASURY ⬆︎ 3.56% (3.47% a week ago)
* 5 YEAR TREASURY ⬆︎ 3.72% (3.59% a week ago)
* 10 YEAR TREASURY *** ⬆︎ 4.15% (4.02% a week ago)
* 20 YEAR TREASURY ⬆︎ 4.75% (4.62% a week ago)
* 30 YEAR TREASURY ⬆︎ 4.79% (4.67% a week ago)
Data courtesy of the Federal Reserve and the Department of the Treasury as of the market close on Friday
* Decided upon by the Federal Reserve Open Market Committee at periodic meetings 8x a year. Used as a basis for overnight interbank loans and for determining high yield savings interest rates.
** Wall Street Journal Prime Rate as of Friday’s close. Used as a basis for determining many consumer loan interest rates such as credit cards, personal loans, home equity loans/lines of credit, securities-based lending and auto loans.
*** Used as a basis for determining mortgage interest rates and some business loans
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* ⬇︎ 6.19%
One week ago: 6.23%, one month ago: 6.19%, one year ago: 6.69%
Data courtesy of Freddie Mac Primary Mortgage Market Survey
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the final rate-setting meeting of the year on December 10th?
* Unchanged from now .. ⬇︎ 13% probability (14% a week ago)
* 0.25% lower than now .. ⬆︎ 87% probability (86% a week ago)
Data courtesy of CME FedWatch Tool
All data based on the Fed Funds interest rate (currently 3.875%). Calculated from Federal Funds futures prices as of the market close on Friday.
PERCENT OF S&P 500 STOCKS ABOVE THEIR OWN 200-DAY MOVING AVERAGE:
* ⬌ 60%
One week ago: 60%, one month ago: 52%, one year ago: 67%
Data courtesy of MacroMicro as of Friday’s market close
This widely-used technical measure of market breadth is considered to be a very robust indicator of the overall health of the S&P 500 index.
A high percentage (above 70%) generally suggests broad market strength and a bullish trend, while a low percentage (below 30%) may indicate market weakness and a bearish trend.
FEAR & GREED INDEX:
“Be fearful when others are greedy and be greedy when others are fearful.” Warren Buffett.
Data courtesy of CNN Business as of Friday’s market close
The Fear & Greed Index from CNN Business can be used as an attempt to gauge whether or not stocks are fairly priced and to determine the mood of the market. It is a compilation of seven of the most important indicators that measure different aspects of stock market behavior. They are: market momentum, stock price strength, stock price breadth, put and call option ratio, junk bond demand, market volatility and safe haven demand.
Extreme Fear readings can lead to potential opportunities as investors may have driven prices “too low” from a possibly excessive risk-off negative sentiment.
Extreme Greed readings can be associated with possibly too-frothy prices and a sense of “FOMO” with investors chasing rallies in an excessively risk-on environment . This overcrowded positioning leaves the market potentially vulnerable to a sharp downward reversal at some point.
A “sweet spot” is considered to be in the lower-to-mid “Greed” zone.
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