By looking past the market’s short-term headline whipsaws and focusing on the more enduring shifts in underlying trends, Sowell’s technical gauges have remained steady and composed—much in the spirit of the season, calm in their conviction and fully invested in the promise ahead.
While most of the country watched reruns of "How the Grinch Stole Christmas," Wall Street spent the week gift-wrapping a banner year. In a holiday-shortened session, the "Santa Claus Rally" delivered exactly what was on the wishlist: record highs fueled by an economy that refuses to read the “recession” script.
The S&P 500 is looking to close the year on top, sitting just shy of a 20% YTD gain with last week’s +1.41% gain. This isn't just holiday cheer; it's backed by data suggesting the U.S. economy is essentially bench-pressing while everyone else is doing cardio.
GDP & The Consumer: Third-quarter GDP growth was revised to a staggering 4.3%, crushing the 3.3% consensus. The engine? A 3.5% surge in consumer spending, proving that despite high prices, Americans still view “shopping” as a competitive sport.
Industrial Might: Industrial Production YoY gained +2.52%, marking its highest increase of 2025. When the factories are humming, the bears start hibernating.
Labor Market: Initial jobless claims came in at a lean 214k, below expectations, signaling that the labor market remains remarkably tight as we head into the new year.
The AI King Returns: After some sideways chop earlier in the month, NVIDIA (NVDA) got its groove back, gaining 5.3% this week as investors bet on another year of infrastructure dominance.
The bond market found its Zen this week. The Core PCE—the Fed’s favorite yardstick for inflation—landed exactly as expected at 2.9%. It’s not quite the 2% target, but it’s cool enough to keep the Fed from being the Grinch. With the 10-year Treasury yield steady around 4.13%, the market is signaling a “soft landing” is no longer a myth—it's the base case.
A Balancing Act
The China Chill: While the U.S. celebrates, China’s industrial sector is shivering. Profits for Chinese industrial firms plummeted 13.1% YoY in November, a sharp acceleration from October's 5.5% drop. Yes, Chinese equities have rebounded from their 2022 lows, but whether this is a genuine recovery or merely a relief rally remains an open question amid persistently weak domestic demand. Officially, unemployment sits at a comfortable-sounding 5.1%, though that figure, often debated, omits large swaths of rural China and many young workers.
Gold’s Moonshot: Gold continued its stride, gaining 3.8% for the week and blowing past the $4,500 per ounce milestone. Whether it's a hedge against geopolitical jitters or just a lack of faith in fiat, the “barbarous relic” has never looked shinier.
We are ending 2025 with a “Goldilocks” setup: growth is hot, inflation is cooling, and the labor market is firm. The S&P 500 is knocking on the door of a 20% return, and if the momentum holds through Wednesday, Santa might leave a few more record highs in our stockings.
However, looking ahead, the forecast isn't all tinsel and lights. Given the volatile year we’ve had in global trade, AI valuations, and sticky inflation, it’s hard to imagine what headwinds lie ahead in 2026 other than “more of the same.” While AI remains the growth engine, the fuel remains the American worker. Labor will likely be the key driver for the Fed in the coming months; if the current “low hire-low fire” equilibrium cracks, the central bank may have to pivot from fighting inflation to floor-padding the economy. We’re moving into 2026 with high spirits, but we're keeping one hand on the “manual override” switch.
“Some of it may well have been justified in the sense that there may well have been free riders, so to speak. And countries do need to do more to invest in their own economic security and also stability.”
— Singapore Prime Minister Lawrence Wong, FT Interview, Oct 22, 2025
Does Powell’s Speech Yield Clues to the Fed’s Policy Path?
Author: Phil Wool, PhD
“Each of them spoke a turgid dialect of English that came to be known as ‘Fedspeak’, a term which seems to connote the use of numerous complicated words to convey little if any meaning.”
—Alan Blinder, Princeton Economics Professor, on the perils of parsing Fed chairs’ words
Like many investors, we found ourselves glued to the screen on Wednesday, December 10, 2025. We weren’t so much wondering what the Fed would do: Even the night before the FOMC announced its decision, futures traders seemed to hold the same view we did, that another notch down in interest rates was all but guaranteed, with CME Group data indicating a market-implied probability of a quarter-point cut at over 88% probability. But we did wonder how the news would sound when Powell delivered it at the post-meeting press conference. In particular, we were looking for policy “tells” in the Fed chair’s tone—not to mention the details of voting, the dot plots, and everything else in this meeting’s quarterly edition of the US central bank’s Summary of Economic Projections.
As “quantamental” investors, we’re characteristically interested in the fundamental content of everything surrounding a heavily anticipated Fed meeting, though we also like to see things through a quantitative lens. Judging by natural language processing performed by the folks at Bloomberg Intelligence, plotted below, Chairman Powell’s opening statement to the press after the meeting came in as one of the most dovish since rates began rising back in 2022.
Was Powell’s Last Presser as Dovish as Language Sentiment Suggests?
Source: Rayliant Research, Bloomberg Intelligence, as of Dec. 10, 2025.
Of course, quant models don’t always capture all of the nuance in something as complicated as human language, and it turns out that some context is probably needed to make sense of the December FOMC transcript. For one thing—as the team at Bloomberg Intelligence aptly noted—the Fed chair made plenty of references to the Fed’s resumption of asset purchases, buying short-term Treasuries, which counted meaningfully toward the model’s sense of dovish sentiment. Powell was careful to note, however, that those bond purchases “have no implications for” the bank’s monetary policy and were really just about managing the Fed’s reserves for the sake of market liquidity.
In our view, bits of Powell’s explanation of the Fed’s deliberations that sounded truly dovish include references to job weakness being less about soft labor market growth—in other words, the supply of jobs—and more about sagging demand for hiring. That’s the kind of unemployment risk that would prompt the Fed to keep cutting. He also mentioned that he thinks the payroll figures reported previously are likely to have understated the trend downward in labor market conditions, once the usual corrections are in. Likewise, Powell reiterated the consensus that inflation stickiness now is driven mostly by tariffs, which the Committee regards as likely to be a one-off. All of these points point to the “balance of risk” still tilting toward employment, suggesting more cuts are in store.
On the other hand, a reference in the post-decision statement to the “extent and timing of additional adjustments to the target range” is precisely what the FOMC has said in past instances of pauses in policy moves, contradicting the notion that cuts will continue. Likewise, we see Powell’s comment that rates are now “within a range of plausible estimates of neutral” as exactly what one might expect the chair to say, signaling the possibility we’re going to be stuck at this level for at least a meeting or two, until more data come in. Getting closer to neutral—where there might naturally be more disagreement as to where exactly that equilibrium is—would also explain the increase in dissent among Fed officials as to whether December should have been a cut or a hold.
Sentiment notwithstanding, shortly after the Fed’s decision and press conference, market-implied forecasts of rate cuts for 2026 jumped out to an expectation for 50 bps more of easing next year, in stark contrast to the FOMC’s dot plot, which showed just one additional cut slated over the next 12 months. While we can’t argue with the plausibility of more easing than the dots indicate, and natural language sentiment scores seem to point in that direction, one thing we regard as pretty much a sure bet for the new year is continuing policy uncertainty—and plenty more fussing over every little word the Fed chair speaks.
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 29, 2025 - January 2, 2026
Christmas for Good Victory Lap
While most of the country watched reruns of "How the Grinch Stole Christmas," Wall Street spent the week gift-wrapping a banner year. In a holiday-shortened session, the "Santa Claus Rally" delivered exactly what was on the wishlist: record highs fueled by an economy that refuses to read the “recession” script.
The S&P 500 is looking to close the year on top, sitting just shy of a 20% YTD gain with last week’s +1.41% gain. This isn't just holiday cheer; it's backed by data suggesting the U.S. economy is essentially bench-pressing while everyone else is doing cardio.
The bond market found its Zen this week. The Core PCE—the Fed’s favorite yardstick for inflation—landed exactly as expected at 2.9%. It’s not quite the 2% target, but it’s cool enough to keep the Fed from being the Grinch. With the 10-year Treasury yield steady around 4.13%, the market is signaling a “soft landing” is no longer a myth—it's the base case.
A Balancing Act
We are ending 2025 with a “Goldilocks” setup: growth is hot, inflation is cooling, and the labor market is firm. The S&P 500 is knocking on the door of a 20% return, and if the momentum holds through Wednesday, Santa might leave a few more record highs in our stockings.
However, looking ahead, the forecast isn't all tinsel and lights. Given the volatile year we’ve had in global trade, AI valuations, and sticky inflation, it’s hard to imagine what headwinds lie ahead in 2026 other than “more of the same.” While AI remains the growth engine, the fuel remains the American worker. Labor will likely be the key driver for the Fed in the coming months; if the current “low hire-low fire” equilibrium cracks, the central bank may have to pivot from fighting inflation to floor-padding the economy. We’re moving into 2026 with high spirits, but we're keeping one hand on the “manual override” switch.
Does Powell’s Speech Yield Clues to the Fed’s Policy Path?
Author: Phil Wool, PhD
“Each of them spoke a turgid dialect of English that came to be known as ‘Fedspeak’, a term which seems to connote the use of numerous complicated words to convey little if any meaning.”
—Alan Blinder, Princeton Economics Professor, on the perils of parsing Fed chairs’ words
Like many investors, we found ourselves glued to the screen on Wednesday, December 10, 2025. We weren’t so much wondering what the Fed would do: Even the night before the FOMC announced its decision, futures traders seemed to hold the same view we did, that another notch down in interest rates was all but guaranteed, with CME Group data indicating a market-implied probability of a quarter-point cut at over 88% probability. But we did wonder how the news would sound when Powell delivered it at the post-meeting press conference. In particular, we were looking for policy “tells” in the Fed chair’s tone—not to mention the details of voting, the dot plots, and everything else in this meeting’s quarterly edition of the US central bank’s Summary of Economic Projections.
As “quantamental” investors, we’re characteristically interested in the fundamental content of everything surrounding a heavily anticipated Fed meeting, though we also like to see things through a quantitative lens. Judging by natural language processing performed by the folks at Bloomberg Intelligence, plotted below, Chairman Powell’s opening statement to the press after the meeting came in as one of the most dovish since rates began rising back in 2022.
Was Powell’s Last Presser as Dovish as Language Sentiment Suggests?
Sentiment Scores, Sentences in FOMC Press Conference Opening Statement, Jan. 2012 – Dec. 2025
Source: Rayliant Research, Bloomberg Intelligence, as of Dec. 10, 2025.
Of course, quant models don’t always capture all of the nuance in something as complicated as human language, and it turns out that some context is probably needed to make sense of the December FOMC transcript. For one thing—as the team at Bloomberg Intelligence aptly noted—the Fed chair made plenty of references to the Fed’s resumption of asset purchases, buying short-term Treasuries, which counted meaningfully toward the model’s sense of dovish sentiment. Powell was careful to note, however, that those bond purchases “have no implications for” the bank’s monetary policy and were really just about managing the Fed’s reserves for the sake of market liquidity.
In our view, bits of Powell’s explanation of the Fed’s deliberations that sounded truly dovish include references to job weakness being less about soft labor market growth—in other words, the supply of jobs—and more about sagging demand for hiring. That’s the kind of unemployment risk that would prompt the Fed to keep cutting. He also mentioned that he thinks the payroll figures reported previously are likely to have understated the trend downward in labor market conditions, once the usual corrections are in. Likewise, Powell reiterated the consensus that inflation stickiness now is driven mostly by tariffs, which the Committee regards as likely to be a one-off. All of these points point to the “balance of risk” still tilting toward employment, suggesting more cuts are in store.
On the other hand, a reference in the post-decision statement to the “extent and timing of additional adjustments to the target range” is precisely what the FOMC has said in past instances of pauses in policy moves, contradicting the notion that cuts will continue. Likewise, we see Powell’s comment that rates are now “within a range of plausible estimates of neutral” as exactly what one might expect the chair to say, signaling the possibility we’re going to be stuck at this level for at least a meeting or two, until more data come in. Getting closer to neutral—where there might naturally be more disagreement as to where exactly that equilibrium is—would also explain the increase in dissent among Fed officials as to whether December should have been a cut or a hold.
Sentiment notwithstanding, shortly after the Fed’s decision and press conference, market-implied forecasts of rate cuts for 2026 jumped out to an expectation for 50 bps more of easing next year, in stark contrast to the FOMC’s dot plot, which showed just one additional cut slated over the next 12 months. While we can’t argue with the plausibility of more easing than the dots indicate, and natural language sentiment scores seem to point in that direction, one thing we regard as pretty much a sure bet for the new year is continuing policy uncertainty—and plenty more fussing over every little word the Fed chair speaks.
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.