The last full trading week of 2025 followed a weekend which saw a temporary spike in the odds on the “other Kevin”, Warsh, being nominated by Trump as the next Fed chairman at the expense of Hassett whose potential chairmanship has not been well received by markets due to the perception that he could put the economy at risk by being so clearly deep in the president’s pocket.
Stocks steadied on Monday after the previous Friday’s tech rout as analysts kept up a somewhat optimistic drumbeat in their 2026 index projections but, again, more ho-hum “old school” names and smaller companies behaved better than Big Tech/AI with the ongoing intense punishment of index heavyweights Oracle and Broadcom generating continued AI fatigue which infected other stocks in the sector. It is interesting to note that five of the Magnificent Seven stocks have failed to match the returns of the S&P 500 index this year.
By the closing bell, the S&P 500 was little changed but the NASDAQ was definitely lower. Interest rates inched higher and crypto began to tumble again, with Bitcoin firmly heading towards the fourth down-year in the last eleven, despite the touted tailwinds of its supposed maturity, mass adoption, ETFs and a champion in Trump.
On Tuesday, we got a delayed double Jobs Report for both October and November and it showed job creation pretty much as expected but an unemployment rate ticking up to 4.6%. For financial markets, bad labor market news is generally good news for stocks as deteriorating conditions encourage the Fed rate cut case, but this particular data set was hard to interpret with distortions due to the shutdown and federal workforce restructuring. We also saw Retail Sales numbers which were basically unchanged.
As a result, there was a muted reaction with a negative lean from stocks with attention quickly shifting to potentially more insightful data on the inflation front on Thursday. The indexes closed the session mixed with the S&P 500 slightly down but a late-day pickup in tech stocks carried the NASDAQ lightly into the green.
Ongoing AI skepticism kicked back in on Wednesday and once again it was the darlings of 2025 that led the indexes substantially lower as the butchering of Oracle and Broadcom resumed with big-daddy Nvidia getting pulled into the bloodbath.
The decline was also fueled by potential negotiation breakdowns over Ukraine and US health insurance premium subsidies as well as spiking oil prices caused by rising tensions around Venezuela.
Premarket on Thursday, a delayed CPI release showed a cooler-than-expected 2.7% retail inflation rate, giving the Fed a very bright green light to continue cutting rates. Despite significant caveats and concerns about the reliability of the report given shutdown-related data collection challenges and a lack of context given the fact that there was no October release, Wall Street was giddy with excitement.
Stock indexes soared and interest rates dived. The beaten-down NASDAQ and the interest-rate-sensitive small company universe were the main beneficiaries of the rush to buy.
Overnight, the Japanese central bank raised local interest rates to a three-decade high, unnerving bond traders around the world and bringing Thursday’s fall in US interest rates to a quick halt. However, when stock traders reconvened in New York on Friday (which was a Quadruple Witching Day), they took up right where they left off and carried the indexes solidly higher again with the tech-heavy NASDAQ leading the way once more, as dip-buyers emerged to scoop up some of the more battered names like Oracle, Broadcom and the rest.
I’m sorry to keep banging on about this, but I cannot emphasize it enough, especially after a week in which so much misinformation was being spread in the media (and on the likes of Fin-Tok FFS!) after the inflation numbers on Thursday.
No matter what this administration or the Kevin Hassetts of this world tell you, the Federal Reserve does NOT have the ability to lower the 10 year Treasury interest rate, upon which mortgage and other loan rates depend.
This rate is entirely determined by massive institutional bond traders, some of whom are considered to be vigilantes who may well have a tendency to sell bonds and thereby raise interest rates if they see what they view as irresponsible economic and fiscal policy combined with limited or no growth and/or elevated levels of inflation.
Case in point, since the Fed started cutting towards the tail end of 2024, the overnight Fed Funds Rate has been pushed down from 5.375% to 3.625% whereas the impactful 10 year Treasury rate is essentially no different now than it was then and actually moved higher following the most recent Fed rate cut just a week and a half ago.
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ARTICLE OF THE WEEK ..
In bonds, many investors think they have a risk-free asset and are surprised when it turns out not to be. Understand your bond holdings.
.. AND I QUOTE ..
“Diversification is an explicit recognition of ignorance. And I view diversification not only as a survival strategy but as an aggressive strategy, because the next windfall might come from a surprising place. I want to make sure I’m exposed to it.”
Peter Bernstein, author, financial historian and economic consultant
LAST WEEK BY THE NUMBERS:
Last week’s market color courtesy of finviz.com
Last week’s best performing US sector: Consumer Cyclical (two biggest holdings: Tesla, Amazon) ⬆︎ 1.0% for the week
Last week’s worst performing US sector: Energy (two biggest holdings: Exxon-Mobil, Chevron) ⬇︎ 3.0% 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 fell 0.2% last week, is up 16.1% so far this year and ended the week 1.3% below its all-time record closing high (12/11/2025).
* 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 fell 1.2% last week, is up 13.5% so far this year and ended the week 2.9% below its all-time record closing high (12/10/2025).
* 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 fell 1.2% last week, is up 26.7% so far this year and ended the week 2.1% below its all-time record closing high (12/11/2025).
INTEREST RATES:
* FED FUNDS RATE * ⬌ 3.625% (unchanged from a week ago)
* PRIME RATE ** ⬌ 6.75% (unchanged from a week ago)
* 3 MONTH TREASURY ⬇︎ 3.62% (3.63% a week ago)
* 2 YEAR TREASURY ⬇︎ 3.48% (3.52% a week ago)
* 5 YEAR TREASURY ⬇︎ 3.70% (3.75% a week ago)
* 10 YEAR TREASURY *** ⬇︎ 4.16% (4.19% a week ago)
* 20 YEAR TREASURY ⬇︎ 4.77% (4.82% a week ago)
* 30 YEAR TREASURY ⬇︎ 4.82% (4.85% 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. Tending to move in lockstep with the Fed Funds Rate, this measure is used as a basis for determining certain consumer loan interest rates such as credit cards, auto loans, personal loans, home equity loans/lines of credit and securities-based lending.
*** Used as a basis for determining mortgage interest rates and some business loans
AVERAGE 30-YEAR FIXED MORTGAGE RATE:
* ⬇︎ 6.21%
One week ago: 6.22%, one month ago: 6.25%, one year ago: 6.72%
Data courtesy of the Freddie Mac Primary Mortgage Market Survey
INTEREST RATE EXPECTATIONS:
Where will the Fed Funds interest rate be after the next rate-setting meeting on January 28th?
* Unchanged from now .. ⬆︎ 78% probability (76% a week ago)
* 0.25% lower than now .. ⬇︎ 22% probability (24% a week ago)
With eight rate-setting meetings in 2026, what is the most commonly-expected number of 0.25% Fed Funds interest rate cuts next year?
* ⬌ Two (down by one from a week ago)
Data courtesy of CME FedWatch Tool
All data based on the Fed Funds interest rate (currently 3.625%). 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:
* ⬇︎ 58%
One week ago: 62%, one month ago: 51%, one year ago: 52%
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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