Our technical and systematic process is built to look beyond the short-term market whipsaw observed last week and concentrate on meaningful shifts in underlying trends. Sowell’s technical gauges remain characteristically composed—and fully invested.
The week ending December 19, 2025, was another market mood swing. We started the week looking like we were heading for a "Blue Christmas," only to end it with a tech-fueled rally that proved, once again, that betting against the AI stack is like betting against the house. By the closing bell on Friday, the S&P 500 and the Nasdaq managed to scrape out modest gains of +0.13% and +0.49%, respectively, effectively erasing a mid-week meltdown.
The Jobs Report: Better, but Weirdly Specific
Because nothing says "holiday cheer" like government bureaucracy, we finally received the November jobs report, which had been trapped in the abyss of the recent government shutdown. The data was a bit of a "good news, bad news" sandwich:
The Improvement: The U.S. added an average of 75,000 private-sector jobs per month from September through November. Compared to the measly 13,000 average we saw over the summer, this was a massive step up.
The Reality Check: Despite that bounce, 2025 has been the leanest year for job seekers since 2009. We’ve only added 786,000 jobs all year—the smallest gain in 16 years.
This tepid hiring has pushed the unemployment rate to a four-year high of 4.6%. We are likely falling below the "break-even" rate—the number of jobs needed just to absorb graduates, immigrants, and retirees returning to the workforce. When you fall below that line, the public starts getting nervous.
The Inflation "Gift" and the AI Roar
So, why did the market go up? Two words: Inflation and Memory.
On Thursday, the Bureau of Labor Statistics delivered the best news of the week. Consumer prices rose just 2.7% year-over-year, comfortably beating the 3.1% expectation. This gave the Federal Reserve a green light to keep liquidity flowing, essentially rocket fuel for growth stocks.
But the real story was the resurrection of the AI trade. After a shaky start to the week, the heavyweights regained their footing. While everyone talks about NVIDIA and their GPUs, the market finally woke up to the fact that an AI data center is just a very expensive paperweight without memory.
The Micron Rise
Micron Technology was the undisputed MVP of the week, surging +10% (+215% YTD). Why? Because the AI "stack" requires massive amounts of High-Bandwidth Memory (HBM).
Revenue Growth: Micron’s revenue jumped a staggering 57% year-over-year.
Quarterly Momentum: Even more impressive, revenue was up 20% just from the previous quarter.
The Leader: As a market leader in HBM, Micron proved that the AI trend isn't just about processing power; it's about the speed and capacity to move that data.
The Takeaway
Looking ahead to the final full week of December, the market isn’t quite ready to go on autopilot just yet. Investors will digest a rare "double feature" on Tuesday, December 23, as the Bureau of Economic Analysis (BEA) releases both Q3 GDP and the PCE Price Index. Because of the earlier government shutdown, this GDP report is our first official look at growth, with expectations hovering around a resilient 3.2%. Meanwhile, all eyes will be on the PCE—the Fed's favorite inflation metric—to see if it follows the CPI's lead and keeps the "lower for longer" rate narrative alive. We’ll also get a midweek update on jobless claims on Wednesday (shifted early for Christmas), which will be the final gut check on whether the labor market is stabilizing or if that 4.6% unemployment rate is looking for more company.
It’s been a year of data droughts, AI booms, and more plot twists than a prestige TV drama. But as we stare down the final days of 2025, the market has managed to navigate the fog and find its footing. Here’s to a year that proved that even when the government turns off the lights, the AI doesn't stop humming and the bulls don't stop charging. Cheers to 2025—a year that was definitely a winner, and memorable!
“The new language points out that we'll carefully evaluate that incoming data. And, also, I would note that having reduced our policy rate by 75 basis points since September and 175 basis points since last September, the fed funds rate is now within a broad range of estimates of its neutral value, and we are well positioned to wait to see how the economy evolves.”
— Chair Powell’s FOMC Press Conference, December 10th, 2025
Risk, Uncertainty, and Profit — Interpreting a Chicago Warning
By Gregory Lai, urgent communique from Senior PM and Affinity’s market historian, Mike Petrino (University of Chicago, MBA)
When Mike Petrino hands you a macro note, you read it the way you’d read a seismologist’s tremor report. Mike was trained in the late 1970s at the University of Chicago, back when Frank Knight was practically canon law, and risk was something you measured, not emotionalized.
His framework is simple: when valuations stretch, policy wobbles, and investors grow complacent, uncertainty—not risk—does the real damage.
His latest piece hits the same chord, but in a way that feels tailor-made for 2025.
The Market Is Priced as If Nothing Can Go Wrong
The S&P 500 is trading around 30x trailing earnings—far above its long-term average near 18x. But it’s the concentration that jumps out: seven companies now make up nearly 37% of the index, and they trade at more than 50x earnings, on average.
They’ve earned those multiples for one reason: the market believes AI adoption will be linear, uninterrupted, and exponential.
Through the first ten months of the year, the S&P 500 returned about 16.3%. Without the Magnificent Seven? Roughly 7%.
That’s not leadership; that’s dependency.
And as Mike notes, a surprising percentage of the shareholders owning this AI-powered leadership cohort don’t fully understand the technology, the competitive landscape, or the earnings pathways.
In his words: “These stocks are in weak hands.”
In my words: When everyone is certain, the market forgets what uncertainty feels like.
Policy as a Source of Instability
Mike frames tariffs the way a Chicago-trained economist does: as quasi-tax adjustments. Tariff hikes? Tax hikes. Tariff reductions? Tax cuts.
The Trump Administration’s back-and-forth tariff regime amounts to an unpredictable series of effective tax-rate changes. Businesses can’t plan; investors can’t discount.
But the more immediate instability came from Congress. The 43-day government shutdown—the longest in U.S. history—rattled confidence exactly when the economy could least afford it.
Air travel disruptions and unpaid government workers weren’t the story; the story was the signal: there may be more shutdowns, because nothing systemic has been fixed.
The Federal Reserve Isn’t the Hero This Time
Liquidity is abundant. M2 is growing around 4% year-over-year—more than consistent with the Fed’s stated 2% inflation target. CPI is drifting above 3%.
Yet the market remains obsessed with Fed rate cuts, as if liquidity were the missing ingredient for economic health.
Mike’s point is sharp: Liquidity isn’t the issue. The issue is fragility.
And the data bears it out:
Unemployment drifting from 4.0% to 4.4%
Industrial production growing only 1%
Employment growth around 1.1%—well below trend
In other words, the economy is not robust. Profit expectations may be too high. Downward revisions are not a tail risk—they’re a base case.
When Risk Is Quantified but Uncertainty Is Ignored
Mike brings in Frank Knight, the University of Chicago legend whose 1921 book Risk, Uncertainty, and Profit defined a century of economic thought.
Knight’s distinction:
Risk is quantifiable.
Uncertainty is not.
And profits in excess of the market rate come from operating under uncertainty—not from taking on measurable risk.
The problem today is that the market is pricing risk, but the world is delivering uncertainty. AI expectations, tariff policy, political gridlock, and the softening economy don’t fit neatly into a spreadsheet.
We’ve seen this before: 1987, COVID’s March 2020 crash, the GFC’s liquidity spiral.
All moments where the distribution of outcomes bent sharply outside historical ranges.
High valuations today imply investors are assigning a very low probability to a market event that violates the “normal” return distribution.
That is the Knightian setup. That is Mike’s warning.
My Interpretation
Mike is not making a market call. He’s reminding us of an old truth:
Risk is what you price. Uncertainty is what blindsides you.
When markets stretch this far, narratives become indistinguishable from forecasts. AI becomes not a technology, but a destiny. Liquidity becomes a cure-all. Tariffs become political theater.
And concentration becomes something to admire, not fear.
But the economy underneath is slowing. Policy is erratic. Inflation is sticky. And earnings expectations are brittle.
This doesn’t mean crash. It means repricing—the slow kind or the sudden kind.
As Mike would put it, discomfort will follow.
As I’d put it: Don’t confuse a straight line in AI adoption with a straight line in returns.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.
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WEEK AHEAD
December 22-26, 2025
The Jobs Report: Better, but Weirdly Specific
The Inflation "Gift" and the AI Roar
The Takeaway
Risk, Uncertainty, and Profit — Interpreting a Chicago Warning
By Gregory Lai, urgent communique from Senior PM and Affinity’s market historian, Mike Petrino (University of Chicago, MBA)
When Mike Petrino hands you a macro note, you read it the way you’d read a seismologist’s tremor report. Mike was trained in the late 1970s at the University of Chicago, back when Frank Knight was practically canon law, and risk was something you measured, not emotionalized.
His framework is simple: when valuations stretch, policy wobbles, and investors grow complacent, uncertainty—not risk—does the real damage.
His latest piece hits the same chord, but in a way that feels tailor-made for 2025.
The Market Is Priced as If Nothing Can Go Wrong
The S&P 500 is trading around 30x trailing earnings—far above its long-term average near 18x. But it’s the concentration that jumps out: seven companies now make up nearly 37% of the index, and they trade at more than 50x earnings, on average.
They’ve earned those multiples for one reason: the market believes AI adoption will be linear, uninterrupted, and exponential.
Through the first ten months of the year, the S&P 500 returned about 16.3%. Without the Magnificent Seven? Roughly 7%.
That’s not leadership; that’s dependency.
And as Mike notes, a surprising percentage of the shareholders owning this AI-powered leadership cohort don’t fully understand the technology, the competitive landscape, or the earnings pathways.
In his words: “These stocks are in weak hands.”
In my words: When everyone is certain, the market forgets what uncertainty feels like.
Policy as a Source of Instability
Mike frames tariffs the way a Chicago-trained economist does: as quasi-tax adjustments. Tariff hikes? Tax hikes. Tariff reductions? Tax cuts.
The Trump Administration’s back-and-forth tariff regime amounts to an unpredictable series of effective tax-rate changes. Businesses can’t plan; investors can’t discount.
But the more immediate instability came from Congress. The 43-day government shutdown—the longest in U.S. history—rattled confidence exactly when the economy could least afford it.
Air travel disruptions and unpaid government workers weren’t the story; the story was the signal: there may be more shutdowns, because nothing systemic has been fixed.
The Federal Reserve Isn’t the Hero This Time
Liquidity is abundant. M2 is growing around 4% year-over-year—more than consistent with the Fed’s stated 2% inflation target. CPI is drifting above 3%.
Yet the market remains obsessed with Fed rate cuts, as if liquidity were the missing ingredient for economic health.
Mike’s point is sharp: Liquidity isn’t the issue. The issue is fragility.
And the data bears it out:
In other words, the economy is not robust. Profit expectations may be too high. Downward revisions are not a tail risk—they’re a base case.
When Risk Is Quantified but Uncertainty Is Ignored
Mike brings in Frank Knight, the University of Chicago legend whose 1921 book Risk, Uncertainty, and Profit defined a century of economic thought.
Knight’s distinction:
And profits in excess of the market rate come from operating under uncertainty—not from taking on measurable risk.
The problem today is that the market is pricing risk, but the world is delivering uncertainty. AI expectations, tariff policy, political gridlock, and the softening economy don’t fit neatly into a spreadsheet.
We’ve seen this before: 1987, COVID’s March 2020 crash, the GFC’s liquidity spiral.
All moments where the distribution of outcomes bent sharply outside historical ranges.
High valuations today imply investors are assigning a very low probability to a market event that violates the “normal” return distribution.
That is the Knightian setup.
That is Mike’s warning.
My Interpretation
Mike is not making a market call. He’s reminding us of an old truth:
Risk is what you price.
Uncertainty is what blindsides you.
When markets stretch this far, narratives become indistinguishable from forecasts. AI becomes not a technology, but a destiny. Liquidity becomes a cure-all. Tariffs become political theater.
And concentration becomes something to admire, not fear.
But the economy underneath is slowing. Policy is erratic. Inflation is sticky. And earnings expectations are brittle.
This doesn’t mean crash. It means repricing—the slow kind or the sudden kind.
As Mike would put it, discomfort will follow.
As I’d put it: Don’t confuse a straight line in AI adoption with a straight line in returns.
Advisory services offered through Sowell Management, a Registered Investment Advisor. The views expressed represent the opinion of Sowell Management. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Stated information is derived from proprietary and non-proprietary sources that have not been independently verified for accuracy or completeness. While Sowell Management believes the information to be accurate and reliable, we do not claim or have responsibility for its completeness, accuracy, or reliability. Statements of future expectations, estimates, projections, and other forward-looking statements are based on available information and Sowell Management’s view as of the time of these statements. Accordingly, such statements are inherently speculative as they are based on assumptions that may involve known and unknown risks and uncertainties. Actual results, performance or events may differ materially from those expressed or implied in such statements. Investing in securities involves risks, including the potential loss of principal. While equities may offer the potential for greater long-term growth than most debt securities, they generally have higher volatility. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles, or from economic or political instability in other nations. Past performance is not indicative of future results.