Weekly Newsletter: December 22, 2025
The noise, noise, noise, it is enough to make the Grinch a bit crazy. Last week’s noise was emblematic of the noise during the past year in the markets. First up was the employment data that had a little of everything for everyone. The unemployment rate ticked up, continuing its very slow trend higher. The number of new jobs created was better than expected, and more people were entering the labor force (hence the tick higher in unemployment). Wages grew at a rate faster than inflation, which will allow the average worker to catch up with inflation. Next up was retail sales, which were better than expected as auto sales were a drag on the headline figure. If investors were looking for capitulation by the consumer, it was not in this report. Finally, the inflation data everyone was waiting for, and based on the lack of decent data, could have waited even longer. Since October was never done (and could not be done), the information was essentially put in at zero for October. The knock-on impact is that the housing data is a quarterly update, meaning the zero in October will be carried into November and December. Shelter comprises roughly one-third of the report, so a zero here helps the overall report. So what did the markets do with all this “noise”? Rally at the end of the week to push the averages ever so slightly upwards for the entire week.
The noise is not confined to the past week. It has been around all year, from the imposition of tariffs in March to the government shutdown and all the political posturing throughout the year. The financial markets have been focused on just a few things. First is the impact of AI on cutting costs for businesses and making the overall corporate landscape more profitable. The second is the potential profits for those building out the AI data centers. The last is the surprising rise in earnings from businesses in 2025. The earnings gains of 16% in the SP500 over the past year mirrored the gains in the index. Yes, the markets are and remain overvalued as they were at the start of the year, but earnings are what will drive the market over the long term. Investors did well to tune out the noise and stick to their long-term investment plan. As long as the economy and earnings hold up, it could be another good year in 2026.
Ever so slowly, the yield curve is moving toward normal, where 10-year yields are significantly above those at the 2-year mark. For the past three years, the difference between the two has been below three-quarters of a point, unusually low for an unusually long time. Historically, a more “normal” curve between the 2 and 10-year yields would allow investors to introduce more corporate bonds or even high yield into a portfolio since they would be compensated for the risks they were taking. Not so today, as most “spreads” are at or near historically low levels, meaning the extra yield achieved may not cover the risks being taken outside of a treasury bond.
For a brief moment mid-week, the value index was higher than the growth index on the year. Over the past two months, technology in general has taken a breather while the averages have been held up by the “other” names in the SP500. After such a long, multi-year run, of tech outperforming everything else, it would not be a surprise to see everything else do well while tech takes a back seat for a year or two.
We wish you a very Merry Christmas and a bright Hanukkah. We thank you for your continued trust and are very grateful to have you as part of our family. Enjoy the time with family and friends this holiday season, and may it be filled with laughter, happiness, and good health.
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.