Commentary for December, 2025

Hello all - we hope had a nice December.  Hard to believe 2025 is here already.

First a little housekeeping.  As of 2025, we have a new address:
   130 Corridor Rd. #241
   Ponte Vedra Beach, FL 32004

Getting to the markets, December wasn’t kind to the markets.  The Dow lost 5.3%, the S&P 500 fell 2.5%, and the Nasdaq, which has a higher concentration of tech stocks, was up a modest 0.5%.

We don’t often talk about the Dow index, even though it is the index that usually gets the most attention in the nightly news reports.  The Dow had a particularly bad month with only a handful of positive days.

The month was so bad for the Dow, in fact, that it had its longest losing streak since 1974 with 10-straight down days.

Here’s a chart of the markets this month:

Volatility spiked higher this month, too.

Bond prices also fell rather sharply this month as bond yields resumed their rise.  There are some worries brewing in the bond market.

While the monthly news wasn’t great for the markets, we did close out another very strong year for the markets.

For 2024, the Dow rose 12.9%, the S&P 500 gained 23.3%, and the Nasdaq was higher by a solid 28.6%.

The 23% gain in the S&P came after a 24% gain last year, which makes it the best two-years for the index since 1997-98.   

Here is a look at how the various sectors performed this year:

One concern is that the solid performance in the market is coming from a handful of very large tech companies.  The ten biggest stocks in the S&P 500 now make up 40% of the index.  This is a very unhealthy stat for the index.

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FED

News out of the Fed was the main reason for the decline in stocks this month.  

The Fed did lower their interest rate again this month, which makes it cheaper to borrow money.  This was widely expected by investors.

The problem, though, was the Fed seemed far less likely to lower interest rates further in the future.  

Investors were expecting at least four more interest rate cuts next year, but the Fed said they might do only two cuts.  And possibly less.  

The news was not well received by a market addicted to Fed stimulus.  Markets plunged on the news and nearly every stock was lower by the end of the day.

Last month, we brought up the fact that the Fed will probably be far less “helpful” to the markets under a Trump administration.  

Although they like to pride themselves on being apolitical, their ideas and policies show a hard left-leaning bias.  

Former members of the Fed are now members of the Biden administration and are often seen in the press cheerleading for far-left policies.  

The most damning example comes from the former NY Fed president, where he openly advocated for the Fed to tank the economy in 2019 to prevent the re-election of President Trump. 

Fed chair Powell even took the unusual step in his most recent press conference to condemn some of the proposed Trump policies, like the tariffs.  Never was a word said over the past four years about questionable polices from the Biden administration.  

We may see a fight brewing at the Fed where they try to slow the economy and a Trump administration who wants them to do the opposite.  The Fed has been very important in boosting the markets, so it may cause turbulence for investors in the coming years.

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ECONOMIC CONCERNS

After moderating slightly last month, the indicators we follow for the strength of the economy are deteriorating again.   

First, we’ll look at the yield curve, which is something we’ve talked about often.

In the chart below, note how the blue line dips down and pops back above the black horizontal line.  Every time this happens a recession follows (a recession is noted by the gray shaded area). 

Here’s a similar chart, but with a different bond maturity.  It, too, shows the risk of a recession has increased.

People are struggling to pay their bills, too.  Credit card defaults (where people cannot pay their credit card bill) are rising.  This is something that tends to happen around recessions.

It’s not all doom-and-gloom, however.  

Another recession indicator we talk about every month is the leading economic indicators.  This index combines several indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index showed a sharp improvement this month, though we’d like to see additional months before getting too excited.

Finally, CEO’s – the people who know their companies the best – are showing optimism that this year will see an improvement in the economy.

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INFLATION

Let’s take a look at the inflation data from this month, where the annual inflation rate had been moving lower, but the decline has now stalled.

That metric is looking at inflation from an annualized measurement (counting the previous 12-month numbers).  When you look at inflation month-by-month, inflation is still rising, just not as quickly.  That means prices are still going up, just not as fast. 

When excluding energy and food from the calculation (which economists call the “core” measurement), we can see inflation still rising solidly every month.

The PPI, which is the inflation at the business level before they pass on the price increases to us, rose again last month.   

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OTHER ECONOMIC DATA

Economic data released this month was mixed.

The strength of the manufacturing and service parts of our economy, manufacturing improved but remains stuck in a contraction.  On the other hand, the service side of our economy has been expanding, but took a turn lower this month.

Retail sales saw an increase on the month. 

However, durable goods (these are items with a longer life, like a phone or refrigerator) showed a decrease.

Consumer confidence saw a surprising drop:

Small business optimism moved sharply higher after the election.  It’s interesting to note that it also saw a sharp move higher after the last Trump election, too. 

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Where does the market go from here?

Stocks are very oversold at this point, signaling they are due for a bounce.  However, they appeared prime for a bounce earlier this month – and they did briefly – before falling sharply lower again.  

One thing the market has going for it is that 2025 is a year that ends with a ‘5’.  That’s right – years ending in ‘5’ are almost always higher.  See for yourself:

All that said, we think the market is ready for a bounce, but will be very careful here.  




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.

Commentary for November, 2024

Hello all - we hope your November was as good as it was for the markets.

A post-election ‘Trump bump” gave the markets a boost to new record highs this month.  The Dow saw a gain of 7.5%, the S&P 500 rose 5.7%, and the Nasdaq, which has a higher concentration of tech stocks, added 6.2%.

Here’s a look at how the markets moved this month:

Here’s a look at how the various sectors of the market performed:

This year has quietly been one of the best years on record.  In fact, the S&P 500 is having its second-best year since 1998.

Much of the performance is coming from a small handful of tech names mostly related to the AI boom.  As you can see in the chart below, the performance of these seven tech names far outpaces the broader market.

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ELECTION

This month’s election of Donald Trump as President gave a breath of fresh air to the markets.  The business environment is poised to be much better, with favorable tax rates and regulations.  The reaction was swift and stocks had their second-best election week performance since FDR (the best week was actually under Biden).

While the economic backdrop looks promising, one concern remains the tariffs.  

Investors got a small taste of the tariff announcements this month when Trump announced new tariffs on Mexico and Canada.  The markets initially fell on the news, but quickly turned and resumed their climb. 

While the economic and investing environment looks to be favorable in the coming years, investors must stay on their toes for surprise announcements like this.  

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FED

Switching gears, the Fed held one of their policy meetings this month and announced another reduction in their interest rates, which makes it cheaper to borrow money.  It was widely expected by investors, but markets still cheered the news.

 

In their meeting minutes that were released a few weeks after the meeting, investors noted that the Fed sounded less likely to lower rates in the future.  The Fed members talked extensively about being more “gradual” and “cautious” on future rate cuts. 

The timing of this caution by the Fed shouldn’t be ignored.  With a new administration in place, they may be less inclined to “help” the economy.  

Even discussing the role of politics in the Fed’s decisions is quickly shut down by financial commentators.  However, it’s easy to see how political the Fed members are and they all lean in the same direction.  

Two former members of the Fed are part of the Biden administration.  Lael Brainard was a Federal Reserve Governor and is now the Deputy Treasury Secretary.  Janet Yellen was the former Chair of the Fed and is now Treasury Secretary, often taking to the press to advocate for Biden policies.  

Additionally, we had former NY Fed President (seen as the #2 position at the Fed) Bill Dudley outright advocating for the Fed to tank the economy in 2019 to prevent the re-election of President Trump. 

We may see a fight brewing at the Fed where they try to slow the economy and a Trump administration who wants them to do the opposite.  The Fed has been very important in boosting the markets, so it may cause turbulence for investors in the coming years.

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DEBT

One major issue for the Trump administration to be concerned about is the debt level.  Our interest payments on the debt have skyrocketed in recent years.

It isn’t even the total debt load that is our main concern.  Our issue is the amount of debt coming due next year that must be refinanced.  

Treasury Secretary Yellen loaded up on short-term debt in order to finance the increase in government spending, allowing the next administration to worry about the problem. 

The amount of debt may cause issues in the market and is another headache for investors.  

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ECONOMIC CONCERNS

We’ve discussed our concerns about the economy a lot in recent months.  Indeed, there looks to be a slowdown in economic data, but since the election, the indicators we follow for recession probabilities have actually improved.

Specifically, we’ll look at the yield curve, which is something we’ve talked about often.  We won’t go into specifically what this is, but the chart is what’s important.  

In the chart below, note how the blue line dips down and pops back above the black horizontal line.  Every time this happens a recession follows (a recession is noted by the gray shaded area).  It had recently risen sharply and it seemed like a recession was near, but the line started to turn lower after the election.  

This tells us that a recession isn’t as imminent as we thought - but the threat is still looming.

Here’s a similar chart, but with a different bond maturity.  It, too, shows the risk of a recession has receded as the line has moved lower since the election.

Another recession indicator we talk about every month is the leading economic indicators.  This index combines several indicators that tend to signal the direction of the economy (like weekly unemployment numbers, building permits, etc.).  

This index continues to be negative, and it has never gone this long without a recession following.

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INFLATION

Let’s take a look at the inflation data from this month, where the annual inflation rate had been moving lower, but now appears to be stalling.

That metric is looking at inflation from an annualized measurement (counting the previous 12-month numbers).  When you look at inflation month-by-month, inflation is still rising, just not as quickly.  That means prices are still going up, just not as fast. 

When excluding energy and food from the calculation (which economists call the “core” measurement), we can see inflation still rising solidly every month. 

The PPI, which is the inflation at the business level before they pass on the price increases to us, rose again last month.

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OTHER ECONOMIC DATA

Economic data released this month was mixed.

First, we’ll look at employment figures, where just 12,000 jobs were added last month.

We saw this next chart and thought it was too incredible to not post.  It shows the number of government jobs has risen sharply.

As for the strength of the manufacturing and service parts of our economy, manufacturing remains stuck in a contraction, but the service side of our economy continues to look good.

Retail sales saw a slight increase on the month. 

Durable goods (these are items with a longer life, like a phone or refrigerator) showed a tiny increase.

Sentiment surveys took a sharp turn higher after the election.  Economic optimism has risen dramatically. 

Consumer confidence saw a nice increase:

Small business optimism moved higher, too:

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YOU COULD ALREADY BE A MILLIONAIRE

Great headline, right?  But it’s true.  If you have any bananas in your house, you could be a millionaire.  

An actual headline:

You may have seen this story in the news.  An “art exhibit” that was nothing more than a banana taped to a wall sold for $6.2 million.

While it is clearly ridiculous, investors should take note of these types of events – absurd stories like this often come at market tops.  

The buyer is a crypto currency executive.  After the dramatic run crypto prices have had recently, it may signal we are nearing a top in the crypto sector.  

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Where does the market go from here?

Stocks are on the expensive side here.  However, the amount of new money pushing stocks higher has been steady and has shown little signs of abating. 

While we would be hesitant to add new money at this point, we think a continued rise in the market is more likely.  

An employment report later this week and another Fed meeting near, both events have the ability to change the trend in the market.

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.