Weekly Newsletter: December 15, 2025
The markets got what they wanted for Christmas: another quarter-point cut in interest rates. However, the Fed was not in complete agreement that it was a deserved cut. As he did at the last meeting, Stephen Miran wanted a half-point cut, while two others figured rates were where they needed to be. Since Christmas usually winds up with “over giving” and paying for those gifts well into the new year, so too the Fed indicated they would begin buying treasury securities again. In essence, they are putting additional cash into the financial markets. Instead of cutting their balance sheet and removing excess cash from the financial markets, they will be doing the exact opposite. It is under the guise of providing some additional grease to the financial gears, but so far, that added liquidity has not been needed. Like any kid getting everything they could want for Christmas and more, the markets rallied on the news, pushing to new all-time highs for the first time in six weeks. The implied message in the actions of the Fed is that the economy is struggling, especially the job market, and it needs stimulus. By the time of the next Fed meeting at the end of January, the economic data should be on a regular schedule, and whether the gifts find themselves in the return pile.
In addition to the various Fed governors getting back out on the interview circuit, the economic data catch-up continues next week. Most importantly, are the inflation reports due on Thursday. Employment and retail sales on Tuesday could provide a better picture of the consumer’s health. As we head into the Christmas holiday week, investors should have a decent handle on whether the consumer is staying ahead of inflation with wage gains or falling behind. Recent months have shown wage growth ahead of inflation; for much of the post-Covid period, wages trailed. Expectations for the November jobs data are a slight tick higher in the unemployment rate, with roughly 50k new jobs created. There has been plenty of debate over recent months about the impact of immigration on jobs and job creation. The neutral rate of job growth has been assumed to be 100-125k, with immigration near zero; it is being guessed that the neutral rate is about half of that figure. The jobless claims figures may provide a window into the overall data, and last week saw the usual seasonal jump in claims. Historically, the end of the year/beginning of the next, claims rise as the Christmas rush subsides. So far, the data remains within historically “normal” ranges, indicating a still good job market.
The rate cut and treasury buying announcement last week got different reactions from the treasury market. Short-term rates, which the Fed “controls”, dipped to their lowest levels in three years. The long-term bond yields, which are driven more by inflation fears and economic growth, rose to their highest levels since the summer. The difference between the two, the steepness of the yield curve, is beginning to get back to a normal relationship. High-yielding bonds continue to have a much lower comparative yield to treasuries than historically “normal”. That may be a reflection of investors believing that Corporate America is in good shape and these companies can refinance their debt without trouble.
Technology stocks are beginning to struggle in maintaining their performance dominance heading into year-end. Since Halloween, value, small, and to a lesser extent, international stocks have all done better than the big tech names. Much of the consternation within the tech realm is not necessarily about AI, but the costs of AI. With tech companies spending huge amounts on building data centers, will they be able to get them up and running? How soon? Is one AI “program” better than another? Do we need the huge amount of computing power to be able to help a lowly market newsletter writer? Oracle seems to be the poster child for some of these questions, as it has dramatically increased its debt and may not finish the data center builds due to shortages of materials and labor. Whether true or not, investors are beginning to question the spending and whether there will be a pot of profits to cover all the spending and provide a decent return for investors. In the meantime, hanging out in non-tech investments may allow investors a much smoother ride into year-end and early 2026.
After a short break for the Fed meeting, the economic data begins to flow once again. Retail sales, consumer prices, and jobs data will give investors plenty to ponder in the final full trading week of the year.
The opinions expressed in the Investment Newsletter are those of the author and are based upon information that is believed to be accurate and reliable but are opinions and do not constitute a guarantee of present or future financial market conditions.