The major indexes moved fractionally this past week, pushed lower earlier as investors expressed concerns over the sustainability of the AI trade, but rebounded later on better-than-expected economic news, mostly in the form of tame inflation at the retail level as measured by the Consumer Price Index (see below) as well as the labor market as measured by the November Payroll Report (see below). As noted last week, “we’ve seen this type of action before as concerns over the durability of the AI trade have come to the fore. At this time, we think this theme has some legs, which given its weighting in the S&P 500 may result in the index churning around a bit. We also believe that although we wouldn’t write them off, calendar year 2026 will be one during which more than just three sectors (Information Technology, Communication Services & Consumer Discretionary) participate in this bull market.”
- The yield on Japan’s 10-Year Government Bond, the equivalent of our 10-Year U.S. Treasury Note moved above, 2%, the first time it has done so since 2006. The move prompted the Bank of Japan to raise its key lending rate by 0.25% to 0.75%, a sign that the era of inflation in Japan is over. This could have global repercussions as their debt-to-GDP ratio is well north of 200% which, may at some point put pressure on policymakers to raise taxes of cut spending. It matters to the United States as Japan is the largest foreign holder of U.S. debt. A reduction in demand for that debt could push interest rates here higher.
- A deal was announced between ByteDance, the parent company of TikTok, and a new U.S. based entity, TikTok USDS Joint Venture, LLC. The move, led by Oracle (ORCL) will hopefully end the stalemate between the U.S. and China over the sensitive information gathered by the internet giant.
- According to Bespoke and quoted from MFS, “Since 1984, when crude oil has traded within 1% of a 52-week low and the S&P 500 traded within1% of a 52-week high, as they did on 12/11, the S&P 500’s average performance over the following year was a gain of 16.7%, with gains occurring 91% of the time.”
It’s The Economy…”
- Sales of Existing Homes rose 0.5% to a Seasonally Adjusted Annualized Rate (SAAR) of 4.130 million units during November from 4.110 million during August (-1.0% y/y). According to the National Association of Realtors (NAR) total housing inventory at the end of November was 1.43 million units, down 5.92% or 90,000 from October (7.5% y/y). Unsold inventory slid to a 4.2-month supply at the current sales pace, down from 4.6 months in October and to its lowest level since March 2025. The report also noted that the median price for all existing homes fell 1.23% to $409,200 in November (1.2% y/y) from $414,300. (Source, National Association of Realtors)
- The University of Michigan reported that its Final December Reading of Consumer Sentiment fell to 52.9 (+3.7% y/y) from a preliminary December 53.3 but rose from a final November 51.0. The final December expectations component fell to 54.6 (+7.1% y/y) from a preliminary December 55.0 but rose from a final November 51.0. Lastly, the final December current conditions component fell to 50.4 (-1.4% y/y) from a preliminary December 50.7 and from a final November 51.1. Of note within the survey, according to the Survey of Consumers Director, Joanne Hsu, “year-ahead inflation expectations decreased for the fourth consecutive month to 4.2%. This is the lowest reading in 11 months but is still above the 3.3% seen in January. Long-run inflation expectations eased from 3.4% last month to 3.2% in December.” (Source, Univ of Michigan)
- The Consumer Price Index rose 0.3% during September (2.7% y/y), after rising 0 4% during August. The CPI has fallen from a y/y high of 9.1% during June 2022 but is at its highest since January. Energy prices spiked 1.5% higher during September (4.2% y/y) after rising 0.7% in August. Food and beverage prices rose 0.2% (2.6% y/y) during September after increasing 0.5% in August. The cost of shelter rose 0.2% during September (3.0% y/y), after rising 0.4% during August. Excluding food and energy, the core CPI rose 0.2%, after rising by 0.3% during August. Over the past year the core CPI has risen 2.6%, well below the September 2022 peak of 6.6%. (Source, U.S. Bureau of Labor Statistics)
- Non-Farm Payrolls(approximately 80% of the U.S. workforce) rose by 64,000 during November after falling 105,000 in October. The November figure was below the consensus estimate of 80,000. The rolling three-month average lifted to 22,000 from -8,000 but fell from 231,700 in January. Private Sector companies added 69,000 jobs while the Public Sector fell by 5,000. This includes a 6,000 drop in federal government employment during November (-8.8% y/y) and 268,000 year-to-date. The Unemployment Rate ticked up to 4.6% during November from 4.4% in October. The Unemployment Rate had gotten as low as 3.4% in April 2023. The Labor Force Participation Rate ticked up to 62.5% from 62.4% during November, well below the pre-COVID peak of 63.3% reached during February 2020 and below the average of 67.1% in 2000, indicating a longer-term structural problem with the labor market as each tenth of a percent represents approximately 168,570 workers. Average Hourly Earnings rose 0.14% or $0.05 to $36.86 during November from $36.81 one month prior and by $1.25 or 3.51% from $35.61 y/y.. (Source, U.S. Department of Labor)
- Retail Sales were unchanged in October(3.5% y/y), after rising 0.1% in September. Spending on Motor Vehicle & Parts slid 1.6% during October (1.2% y/y) after sliding 0.1% in September. Retail Sales Excluding Motor Vehicles & Parts rose 0.4% (4.0% y/y). Two key components of this report, Sales at Gasoline Stations fell 0.8% during October (1.9% y/y) after rising 1.9% in September while Food Services and Drinking Place Sales fell 0.4% during October (4.1% y/y) after rising 0.2% in September. (Source, U.S. Census Bureau)
Economic Reports scheduled to be released this week, include the following – on Tuesday, October Orders for Durable Goods, the Initial Estimate of Third Quarter Gross Domestic Product (GDP) and December Consumer Confidence; and, on Thursday, Initial Claims for Unemployment Benefits.
Several potentially market moving companies are scheduled to report earnings, to include No Companies of note are scheduled to report earnings this holiday week.