Weekly Newsletter: December 1, 2025
The shopping list was made, everything from the turkey to the spices and potatoes. Do not forget to buy the dip! For Wall Street, the dip buying was the only thing that happened last week. Volume slowed noticeably as everyone was out getting the grocery shopping done. The “buy the dip” mentality has been around for much of the past two years. Each time the markets drop more than a few percentage points, buyers come rushing in and push the averages higher. The “cause” for buying this week was the thought that the Fed would actually cut rates in two weeks, a marked change from two weeks ago, when there was a 30% chance of a cut. That is now over 70%. Some of the logic behind the need for a cut was a slowing in retail sales, a weakening jobs market, and inflation data that was not worrisome. It will take until January before the economic reports begin coming out on their normal schedule, so much of what is being reported is very old news. Still, investors will grab any piece of data and extrapolate it forward to make their point. What is clear is that the Fed will not have the usual set of data. Much like the turkey dinner, if one slice of turkey is good, what’s another slice? The Fed seems to be thinking the same about rate cuts.
Retail sales were disappointing. Without online retailers and gasoline sales, the overall report would have been negative. Pile on higher prices, and it is clear the consumer is not that healthy coming into the important holiday shopping season. Over the past 12 months, retail sales have generally outpaced inflation, but that is beginning to turn as annual sales growth begins to head below 3%. Preliminary data on Black Friday sales were heartening, as sales were up more than 4% from last year. One bit of inflation data that looked OK was producer prices. But like most data prints, it is how you look at the data. Food and energy were significantly higher, although gas at the pump has been relatively steady. Without those two components, producer price inflation was a bit over 2%. The weekly jobless data is now up to date. As it was prior to the shutdown, the data points to a stagnant jobs situation, with little hiring or firing going on. Yes, there have been layoff announcements from a variety of companies, but the hiring rarely gets headlines. Overall, the jobs market looks decent.
The bond market, for all the discussions of rate cuts, large issuance from tech companies, and a stillgrowing US deficit, remains very calm. Short-term rates have declined a few basis points, while longer maturities dropped about 10 basis points. The difference between 2 and 10-year yields has been in a very narrow range for the past 8 months, indicating neither economic strength nor weakness. The inversion of rates in 2022 should have heralded a recession, but the huge spending from the government and easy monetary policy thwarted the downturn. Further evidence of bond market calm is the difference between high-yield bond interest rates and those on treasuries. After rising as the markets fell, they are once again at the low end of their historical range.
After seeing technology stocks take a back seat to the rest of the market during November, the beginning of the holiday season has put the pep back in tech’s step. The rally also meant the averages closed the month with another gain, making it seven months in a row. The combination of economic data catch-up, a potential rate cut, and seasonally favorable markets should keep investors in a holiday mood for the month, finishing up on an improbable year for the markets. As usual, there are always some rough weather just over the horizon for stocks. Chief among them is a market that is very richly valued. Whether looking at corporate sales, earnings, or the overall market value of the markets, each is among the 10% highest valuations in history. That does not mean the markets turn tail as the calendar flips and immediately drops, but that market gains may be much harder to come by in the months and even years ahead.
The Fed is likely to play Santa later this month by cutting rates and potentially providing a boost to stocks. The hard work will likely be coming in the new year as the economic data gets back on its regular reporting track.
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.