Weekly Recap:

by Michael Reinking, CFA & Eric Criscuolo

Published on 12/19/25

-Probably not Clement Clarke Moore

Quick programming note: Beginning next week and until the New Year, we'll be sending out our daily "Mid-Day" email in the morning, around the Open.   

The last few weeks of the year are a special time in the markets. Holiday-shortened work weeks, trading desks on vacation, year-end tax loss selling and portfolio window-dressing are among the dynamics that converge at this time, often playing a role in inducing the fabled Santa Claus rally. We can add a Triple Witching and Index rebalance to top this week off, like a silk hat on a snowman.

Before traders and investors could put a bow on 2025, the overhang of the last Federal Reserve meeting of the year had to be addressed. That was accomplished last week, and it helped set the path to the end of the year and position things for beginning of 2026- at least until everything gets tossed around with a new Fed chair. The Fed cut rates as expected and Doves got some stocking stuffers when Chair Powell wasn’t as hawkish as he could have been while kick-starting a new asset purchase program to help stabilize bank reserves. Equities rallied post-meeting and the day after, but sold off on Friday as the S&P fell 1% and the Russell 1.5%. For the week, the S&P 500 fell 0.6%, but the equal-weight index was the mirror image, gaining 0.7% while the Russell gained over 1% and reached an all-time high. A look under the hood showed growth and techy Mega Cap names sold-off, exemplified by post-earnings weakness in Oracle and Broadcom. Meanwhile sectors like Materials, Financials and the small caps easily outperformed. Since the Fed cut, the 2y yield is down ~6bp, but the 10y is flat and the 30y is up 6bp, steepening the treasury curve as future debt issuance, central bank independence, growth outlooks and inflation paths slam into each other.   

With the Fed out of the way, we turned to the "return" of key economic data. This week it was the CPI.  We'll talk more about it below, but while it technically registered a significant decline, the numbers are being highly discounted, in part because there were barely any numbers in the report. Collection issues from the shutdown made a mess of things. With investors taking that with large clump of salt, we moved to the big options expiration and index rebalances. Those helped put nice, round numbers in play. The S&P couldn't get above 6900 last week. This week started with a move towards 6800, then a break below it, along with the 20 and 50d ma on Wednesday that took us close to 6700. The growing scrutiny (concern?) around AI economics emerged again after news that Blue Owl was pulling out of a financing for a new huge data center. However Micron rode to the rescue after it reported blowout earnings. OpenAI added its support with news that it was in talks to raise potentially $100B at a ~$800B valuation. That helped ease growing concerns of how the company would pay for all of its commitments. However, if the participating investors turn out to be the same platoon that's led the charge into all the other huge AI investments, the Bears taking issue with revenue and investment circularity could roar again. The S&P reclaimed the 20 and 50d while getting back above 6800. The market-weight index finished slightly positive, while the equal-weight was down modestly. Small caps flipped from last week as the Russell finished down 1% despite a rally on Friday. It spent the last half of the week skimming along its 20d ma. Overall, equities closed with a solid performance on Friday's opex, which saw about three billion shares trade in the closing auction.       

An in-depth year-in-review is beyond the scope of this note. But for a quick summary, the S&P is up about 16% this year. That’s on top of gains of more than 20% the prior two years. The record high is about 1% above us. The Russell 2000 is lagging slightly, but up a solid 13%, and the S&P equal-weight index is up about 10%.   

Fittingly as we approach Christmas, Consumer Discretionary was the best performing sector this week, led by the Travel and Leisure group with a big assist from Carnival’s earnings. Homebuilders however moved lower on tepid earnings. Healthcare was another leader with biopharma mostly higher while Med Tech and managed care traded mixed. On Friday nine biopharma companies agreed to lower prices in exchange for a three year exemption from pharma tariffs. Materials was also higher. Mining names (especially lithium) rose as metals continued their run higher, though steel names were mixed after a couple of earnings reports. On the other hand, Energy was down about 3% with oil trading lower amid supply and Ukraine overhangs. Consumer Staples lagged on weakness in beverage names, mixed performance from the giant retailers, and a sharp decline for Lamb Weston after earnings showed a decline in price/mix, partially due to customers trading down to lower cost options. Tech needed a sharp gain on Friday, led by semis, to get into the green. 

Global Markets - It was a mixed week with Asian markets moving lower primarily due to AI concerns and heavy tech exposure. On the flipside, European indices moved higher. 

Commodities & Crypto - Mixed week with weakness in energy, agriculture and crypto while metals continued to move higher. 

This week brought the long-delayed government jobs and inflation data. Last week Fed Chair Powell warned there would be distortions in the data which did seem to de-emphasize its importance in the Fed’s next rate decision. Taken at face value the data was dovish showing an increase in unemployment and moderation in inflation, but traders have viewed the data with a healthy dose of skepticism. 

Let’s start with this week’s labor data. On Tuesday the BLS released the establishment survey for both October and November but did not collect the household survey data which is what is used to calculate the unemployment rate. October’s payrolls showed a sharp decline, falling 105K. Government jobs fell by 157K in the month with the BLS noting that part of this decline was from “federal employees who accepted a deferred resignation offer”. Headline November payrolls were slightly better than expected, up 64k with a moderation in federal job cuts to -5k. It is worth noting that private sector hiring was positive in both October (+52k) and November (+69k). Healthcare and social assistance was once again the biggest driver of job gains up ~64k in both months. Construction jobs were up 28k in November with nonresidential specialty contractors accounting for 19k, think datacenter construction. The unemployment rate moved up 4.6% from 4.4% but the caveat is that it was partially driven by an increase in the labor force participation rate which was ticked up to 62.5%. Over the two-month period the household survey showed 407k jobs added to the economy. Wage gains remained muted while the workweek ticked up to 34.3. President Trump took note of the data saying, “I could reduce Unemployment to 2% overnight by just hiring people into the Federal Government, even though those Jobs are not necessary”.

The weekly ADP report showed 16.25K jobs added per week for the four weeks ending Nov. 29, above the 4.75K jobs added in last week’s report. Initial jobless claims held steady ~224k while continuing claims increased from last week but were better than expected, just under 1.9ml. The claims data seems to have worked through the Thanksgiving distortions from a couple of weeks ago just in time for Christmas. 

The CPI report made the labor market data look pristine. The BLS was unable to collect October data which will distort the data and the essentially blank table in the release was almost comical.  With that caveat the “data” was better than expected with prices increasing 0.2% from September to November. So if you were to split that up it would be a 0.1% increase in each month down from around 0.3% in each month since June, which is a pretty steep decline. On an annual basis headline CPI was up 2.7% while core came in at 2.6%, both were down from 3% in September.

 The other piece of government economic data this week was the retail sales. October retail sales were unchanged from September slightly below estimates. However, the control group, which feeds into GDP, came in twice the estimate at 0.8%. Moving to the private sector data S&P Global manufacturing and services PMIs came in below slightly below estimates at 51.8 and 52.9, respectively. The survey showed a softening in orders with hiring also stalling out. On the pricing front manufacturing input/output prices moderated but services picked up. That picture doesn’t really corroborate the CPI report. 

It’s hard to draw too much of a conclusion from this week’s data. This morning on a CNBC interview NY Fed President Williams suggested that the decline in CPI and increase in unemployment were both likely overstated by 0.1%. He said the data is broadly consistent with recent trends and reiterated that he believes the central bank is well positioned to see how the data evolves, that he believes the policy rate is still mildly restrictive and saying he doesn’t have a “sense of urgency” on changing policy.

Yields moved modestly lower this week down between 2-5bps across the curve.The USD index did bounce modestly this week primarily due to strength versus the Yen. 

Watch out for the Santa Claus rally (or lack thereof)- the last 5 trading days of this year and the first two days next year- an historically strong time for stocks. Economic data in the US for anyone who’s watching will include the 2nd estimate for Q3 GDP, Industrial Production, New and Existing Home Sales, weekly jobless claims and the weekly ADP employment report, as well as the minutes from the latest FOMC meeting. The Supreme Court’s ruling on the legality of the administration’s tariffs could potentially come before year-end, as can President Trump’s nomination of a new Fed Chair.  And of course, there’s Christmas and New Years!

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