Hello all - we hope you had a nice December. It sure went quick!
The markets were roughly flat this month. The Dow added 0.7%, the S&P 500 gained a slight 0.06%, and the Nasdaq, which has a higher concentration of tech stocks, was down 0.5%.
The markets were roughly flat this month. The Dow added 0.7%, the S&P 500 gained a slight 0.06%, and the Nasdaq, which has a higher concentration of tech stocks, was down 0.5%.
Here’s a look at how the markets moved this month:
____
We also wrapped up a solid 2025. The Dow was up 13%, the S&P 500 gained 16%, and the Nasdaq rose a nice 20%.
Here’s a look at how the market did this year. You can see it’s still hanging in the trading range that started after the April tariff announcements.
Here’s a look at how the various market sectors performed this year. The top-performing sector, “Comm. Services” is communications stocks, which includes names like Google, Facebook, and Netflix.
Market volatility hit the lowest levels of the year this month.
One concern we have with the current market is the concentration – a handful of large stocks make up the bulk of the index. This is not a healthy sign for the market.
____
We don’t spend much time on commodities, but the currency and metals markets were very interesting this year.
The US Dollar had its weakest year since 2017, down over 9%. There were several reasons for this. Most notably, investors widely see a more dovish Fed (more likely to take a stimulative approach) in the coming months and years based on the likely Trump Fed replacement. Rate cuts are coming next year, which brings borrowing rates down but the currency does not do well.
There's also the massive debts and the Fed vs. Trump bickering that also weighed on the currency.
When currencies do poorly, commodities and metals tend to do better. Gold and silver had incredible runs this year.
Here’s a long-term look at gold, where the rapid rise in 2025 is easy to see:
Here’s a long-term look at gold, where the rapid rise in 2025 is easy to see:
Silver was even more remarkable. It benefited from the weaker currency, but it’s also used in many important products today, like AI data centers and electric cars. China announced new restrictions on exporting silver beginning Jan. 1, so this also fed into the rapid rise.
This is not an area we would be excited about putting new money into, as it’s showing all the characteristics of a bubble.
____
FED
The Fed also had an impact on the markets this month, where they held a policy meeting and announced another reduction in interest rates and will buy more bonds to keep rates down.
____
ECONOMY
We had some very positive economic reports released this month, but there’s also some reason to worry.
First, the GDP report showing the strength of our economy came in surprisingly strong.
The employment report was also positive, albeit only slightly.
This is the concerning part. Employment seems to be weakening. Right now, there aren’t a lot of jobs being lost, but there aren’t a lot being added, either. When looking at hiring on an annual basis, we’re roughly flat.
There has been an increase in the amount of job cut announcements, too.
A lot of these leading indicators have been declining and tend to foreshadow a recession. This can be seen in the red line in the chart below. Every time this line declined in the past, a recession followed.
____
INFLATION
The government shutdown has distorted the inflation metrics released this month, but when looking at inflation on a year-over-year basis, inflation is moving lower.
However, when we look at inflation month-by-month, prices are clearly still rising.
When excluding food and energy (what economists call the “core” inflation), prices are still higher every month.
____
OTHER ECONOMIC DATA
Other economic data releases were mixed this month, too.
The manufacturing side of the economy showed another decline, while the service side saw another increase.
Retail sales were exactly flat, but when you exclude auto sales, the retail sector looks a little better.
Durable goods took a turn lower.
Consumer confidence continues to be an issue as it continues to fall.
Small business optimism rose ever-so-slightly.
____
Where does the market go from here?
In the very short term, looking out a few weeks, we may need to move a little lower before turning higher. We’re still on the expensive side looking out a little further, so we would stay a little more cautious at this time.
This commentary is for informational purposes and is not investment advice, an indicator of future performance, a solicitation, an offer to buy or sell, or a recommendation for any security. It should not be used as a primary basis for making investment decisions. Consider your own financial circumstances and goals carefully before investing. Past performance cannot guarantee results.
