Market Thoughts: Happy holidays

As the calendar winds down traders are doing their best to square positions. They’re putting down the ‘sticks and stones’ thrown back and forth in pursuit of price discovery. We’ve seen a bit of that going on under the broad market surface. Laggards playing catch-up.

The U.S. equity market’s seen a small rotation from big tech into stocks driven far less by momentum. Smaller in size than mega-caps. ‘Value-like’ with lower multiples and beta. Stick with names that have strong free cash flow generation. Don’t go chasing flying pigs, or waterfalls for that matter.

Laggards playing catch-up is a kinder way for a market to consolidate, then move higher. The alternative? For leaders to correct, taking everyone along for the ride. We’ve seen that happen a few times this year. I’m sure we will again.

It’s tough to find a bull market ‘nonbeliever’ these days. That’s an observation about turbulence, not a bearish remark. What’s fueling animal spirits? Fundamentals. Economic growth and earnings continue to see higher revisions. So do profit margins, which for the S&P 500 hover around 14%.

Analysts expect to see a boost to productivity ahead. The One Big Beautiful Bill Act backloaded supply side incentives and stimulus to 2026. With mid-term elections, affordability and political polls swirling, I wouldn’t be surprised to see stimulus increased. It’s an election year after all, "bread and circuses" time.

Affordable Care Act subsidies are center stage come January. For already budget stretched families, healthcare costs gapping higher isn’t a fight any politician should want. People need affordable (there’s that word again) healthcare. Congress needs to do its job, not duck and run.

With the government shutdown behind us policymakers remain patient as noise in economic data subsides. It may take until the end of the first-quarter to get back to a series of data viewed as reliable. That keeps the Fed on hold for now.

Markets liked November’s lower prints of 2.6% and 2.7% year-over-year (yoy), for core and headline inflation. Forecasts were for 3% and 3.1%, respectively. That said, core and headline inflation each increased by 20bps from September. Hawks and doves continue to circle one another.

Growth forecasts are being revised higher. Economists are penciling in 2-2.5% real growth next year. With inflation sticky through at least the first half of 2026, we should see average inflation between 2.5-3% yoy. That suggests a nominal U.S. growth rate around 5%. Very healthy.

Analysts are using the strength of that projection to back into low double-digit earnings growth. Bullish is the new black. It’s trending. That’s always worth noting. Not because I think it’s directionally wrong, but because it intimates another volatile year ahead of us. When everyone has a similar view and positioning—investor herding—market swings can quickly become explosive.

Fourth-quarter earnings kick off mid-January. From discussions we continue to have with companies, we’re shaping up for another strong earnings season. That can help bridge any disappointment from a Fed at the very least on hold until March of next year. Maybe longer.

Looking ahead… challenge consensus narratives. Manage risk budgets with tight reins. Take advantage of the inevitable opportunities. Avoid overcrowding in speculative big beta bets, unless you have proven ability as a lively trader. For long term money, stay invested. Blink and you’ve missed it.

Investors can pick up their market making ‘sticks and stones’ again in the new year. Until then, I wish you peace, joy, glee and the delight offered of the season. Happy holidays!

My next note? The first week in January, barring a market rumble. Then I’ll be back in the office trading.

Unless explicitly stated otherwise, all data is sourced from Bloomberg, Finance LP, as of 12/18/25.

Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors.