It was a tumultuous week on the geopolitical front for the country, but markets took it in stride. The good news is that markets continue to climb, but for how long?

 

Since the beginning of the year, I have seen a fair amount of rotation, something I have suggested could happen. The years of overinvestment in a handful of names appear to be coming to an end as investors go further afield in search of new purchases. For the first time since 2022, value is beginning to outperform growth. Industrials, small caps, financials, health care, defense, and materials seem to be areas where new money is gravitating.

 

All of this is happening under the surface, so just looking at the main averages may be deceiving. Rotation is a good thing and does not automatically mean deterioration. It may feel that way if you are one of the many who are overweight in the MAG 7, AI Five, or some variation of that theme. I suspect that in 2026, those companies that can show they can monetize their investment in AI will thrive; otherwise, not so much.

 

In the meantime, the price action in precious metals has been hair-raising over the past week, especially in silver, platinum, and palladium. I am talking about daily moves of greater than 5 percent in some cases. It is why I have urged readers in the past to be involved but not to bet the farm on this asset class. I hold a similar attitude toward crypto.

 

I am still bullish on both if the U.S. dollar continues to decline. The Trump administration's unstated policy is to weaken the dollar further. In this era of tariffs, a weaker dollar strengthens the competitive position for U.S. exports. It is that simple. As a result, global investors, including central banks, need an alternative to dollar-denominated assets. Precious metals and other commodities are one way to satisfy that need.

 

I believe state capitalism and the new role of the government asventure capitalist will continue to be an investment theme. There will be more companies like Intel and MP Materials that receive taxpayer investments based on their “strategic” importance. What will make one company, rather than another, the recipient of federal largesse will likely depend on the number of visits to Mar-A-Lago.

 

I won't review the news from Venezuela over the past week. Everything readers needed to know concerning Trump's Gunboat (maybe, gunship?) Diplomacy in Venezuela was published in two of my columns in mid-November. My explanation and predictions have indeed come to pass. The bottom line from an investment view is that repairing and developing that country's energy production will take years. The only short-term winners will be U.S. Gulf Coast refiners, and their stock prices already reflect the news.

 

Notice how the president's actions on Venezuela, followed by his desire to increase defense spending by half to $1.5 trillion in 2027, have effectively wiped affordability and the Obamacare insurance premiums issues from the headlines. His Gunship diplomacy is now focused on Greenland, while his resurrection of the Monroe Doctrine in the Western Hemisphere is keeping allies and enemies alike off balance. As a tactician in a mid-term election year, his antics are brilliant. What it says about America will likely be determined by an increasingly populist society during the election process.

 

As I have explained previously, we are still experiencing the global end-of-year flow of funds, which has culminated in the stock market hitting record highs over the last week or so. The latest non-farm payroll number for December came in slightly lower than estimated, adding 50,000 jobs versus the 70,000 estimated. That is the kind of number the Fed wants to see to keep inflation on track.

 

We are still awaiting the Supreme Court decision on tariffs, which many expected to be announced today, January 9. It wasn't. Whatever their decision, it is a toss-up how markets will react. If the tariffs are thrown out, the persistent price inflation caused by these policies will be reduced. That will boost consumer spending and growth. At the same time, the deficit will increase because less tariff revenue will flow into the U.S. Treasury, which has been used to reduce the deficit. If, on the other hand, the court backs the president, expect expectations of higher inflation, lower growth, and more tariffs to rise.

 

For those who have been wondering whether the Santa Claus Rally would occur this year, it appears that Santa is already on the roof. The stock market gained almost all of this holiday-shortened week on lighter volume. Can we expect the same next week?

 

Normally, investors can expect gains of 1-2 percent between now and the end of the first week in January. Markets were closed early on Wednesday and reopened on Friday. Six straight days of gains were a good start with the S&P 500 Index hitting a new record high.

 

I have advised readers not to put too much credence in these gains. The upward pressure on stocks stems more from global fund flows than from anything specific to the stock market. Still, it is a bit like having a snowfall on Christmas. It makes the holiday season a little more cheerful. And I hope you all had a wonderful week!

 

The big news had to be the third quarter release of Gross Domestic Product (GDP). Following a 3.8 percent gain in the second quarter, GDP grew by 4.3 percent on an annualized basis last quarter. That was way beyond economists' estimates.

 

The gains were largely driven by robust consumer spending, but since then, momentum has faded amid a rising cost of living. The administration is steadfast in its belief that GDP will rise by 3 percent in 2026. The Congressional Budget Office has estimated that the government shutdown could shave anywhere from 1-2 percent off GDP in the fourth quarter.

 

That may be so, but a word of caution on the government data. There is no guarantee that the recent data released by the Bureau of Labor Statistics is as accurate or unbiased as it was in the past. Just so you know, the Congressional Budget Office has estimated that the government shutdown could shave anywhere from 1-2 percent from GDP in the fourth quarter.

 

While U.S. stocks did well this year, the real outperformers in 2025 were precious metals and other commodities. Over the festive dinner table this year, the topic of conversation among friends and relatives was not about crypto for a change. No, this year it was about gold and silver prices. "And what about palladium and platinum?"

 

Readers know that was my favored asset class throughout the year. The numbers speak for themselves: gold gained 70 percent, palladium 62 percent, silver 150 percent, and platinum 150 percent. A combination of central bank buying, inflation, tariff fears, and weakness in the dollar has catapulted this group to record high after record high.

 

Recently, new buying has surfaced due to the Section 232 investigations prompted by the White House. These investigations are a first step in determining whether tariffs should be applied to this asset class. If the answer is yes on tariffs, then expect more gains. But it is not just the rabbit and the hare (precious metals) that have attracted my interest; there is a turtle in this race that I am watching as well.

 

Copper, while "only" up 35-40 percent this year, appears to me to have a bright future. As a mining guy back in the day, I know that most often, where there are copper deposits, there is also silver and gold. The three metals are highly correlated, although only silver and copper have industrial uses.

 

In the case of copper, its uses are endless. This lowly metal is everywhere. A great conductor of electricity and heat, it has been part of human history for thousands of years. Today, the combination of mining outages and the need for massive quantities of copper to build new power grids, energy infrastructure, electric vehicles, and AI data centers should support copper prices in the coming years.

 

There is not much I can say about the coming week. It should be a replay of this past week — few players, less volume, fewer trading days, and higher global cash flows. That should propel markets to higher highs, but remember the party should end at least temporarily by the middle of January. Happy New Year to one and all.

 

Friday was the end of the final full week of trading for the year. The next two holiday-shortened weeks will top off a good year for stocks. Will Santa show up for the finale?

 

The much-vaunted Santa Claus Rally is supposed to begin this coming week and carry us through to the New Year. Does it really matter? For the most part, if you had stayed invested through 2025's ups and downs, you should be pretty happy now. Especially so if you had followed my advice and bought some precious metals and mining stocks.

 

Of course, I won't turn my nose up at an extra percent or two into January if Mr. Claus does visit. Now that the president has made the day before and after Christmas a federal holiday, the normally skeleton staffs and anemic volume of this period will be that much lower. That means traders can push stocks up and down to suit their whims while booking additional profits from day trading chasers.  

 

As you know, I did not join the Wall Street crowd predicting what the markets would do this year. It is, in my opinion, a useless exercise that strategists rarely, if ever, get right. The average forecast was for a 7-10 percent gain, and we doubled that.

 

I will be writing about the coming year in time, but let's stick with what is happening so far in December for right now. There has been a deluge of economic data this week. It feels like a tsunami after weeks of a data desert during the government shutdown. The non-farm payroll report for November rose by 64,000 after falling by 105,000 in October. The unemployment rate ticked up to 4.6 percent, the highest level since September 2021.

 

The payroll report is signaling that the labor market is weakening. The Fed would call it "normalizing." Retail sales were OK if you subtract out autos and gasoline. Both the services and manufacturing Purchasing Managers' Indexes were still in the 51.8 percent and 52.9 percent ranges, signaling expansion.

 

However, it is hard to take these numbers at face value because the shutdown had certainly jiggled the data, missed some crucial inputs, and may be subject to partisan doctoring. No surprise, given that the Bureau of Labor Statistic's head was fired by the president and the BLS still lacks a suitable replacement. Remember to subtract 60,000 jobs from every job report; that is the number of jobs the Fed believes are overstated in any given month. So the real number was a gain of 4,000 jobs.

 

On Thursday and Friday, we also received our first inflation numbers. The Consumer Price Index for November rose 2.7 percent, less than most expected (present company excluded). Readers may recall I have been predicting weaker inflation numbers and expect more of the same when the December CPI is announced next month.

 

The president's mid-week speech to the nation was largely ignored by the markets. Rather than paying down the deficit with the tariff money he is collecting from consumers and corporations, President Trump is using some of it to reward those he needs in the upcoming mid-term elections.

 

In this era of expanding state capitalism, the president followed up last week's $12 billion bailout fund for farmers with $2.5 billion in "warrior dividend" paychecks to 1.45 million military service members. His list of beneficiaries of tariff money seems to be getting longer. In addition to paying off the farmers and now, the military, he has proposed redirecting tariff money to voter dividend checks, tax cuts, paying down the national debt, enhanced childcare benefits, a possible end to the income tax, and a victory fund for Ukraine.

 

I warned investors to expect volatility in December, and thus far, I have been correct. There were exceptions. While AI and tech were getting slaughtered, cannabis stocks had some eye-popping gains. Thanks to another executive order: this time to ease marijuana classifications. Back in September 2023, my column "Rescheduling cannabis could boost profits for U.S. marijuana companies" discussed how rescheduling marijuana from a Schedule 1 drug to a Schedule 3 designation could boost grass sellers' bottom line from 20 to 30 percent per annum.

 

But do not confuse a reclassification with making marijuana legal under federal law. It is also completely different from the SAFE Banking Act, which would allow banks to provide financial services to the industry.

 

During the Biden presidency, the on-again, off-again prospects of rescheduling left industry stocks for dead, with short sellers having established huge positions. The prospect of higher after-tax profits and declining expenses has led to a re-rating. Buyers are stepping in, and short sellers are covering their sales. Trump's decisiveness in some situations like this one has to be admired.

 

On Friday, more than $7.1 trillion in options expired. December's quadruple witching event occurs when options on four types of securities expire on the same day. This was the largest options expiration on record. It means little to you if you are a long-term investor, but for traders, it was a day to stay on your toes.

 

I am still betting we do get a bounce higher in the markets based on global money flows at the end of the year. Don't chase, just count your shekels, and if not, don't sweat it. You made a lot this year. Remember that old saying, there are bulls, bears, and pigs, and pigs get slaughtered.

 

Faced with the choice, the Fed considers unemployment a greater threat to the economy than higher inflation. It is why they lowered interest rates again by one quarter point to close out the year.

 

Stocks rallied on the news on Wednesday afternoon but fell back on Thursday and Friday. At least the major averages did, but what went on under the hood spoke volumes about how investors are interpreting the news.

 

Commodity stocks of all kinds were up and outperforming, as were precious metals. Silver was the standout this week, outpacing gold, platinum, and palladium. The equal-weighted S&P 500, which allocates the same weight to each stock in the index, outperformed the benchmark index. Why is that significant? A mere handful of stocks (around 10 overall), which represent 40 percent of the benchmark, have consistently beaten the remaining 490 stocks in performance for several years.

 

Why would the Fed's interest rate decision create this kind of dispersion? The central bank not only cut rates but also promised to begin buying $40 billion worth of short-term Treasury bills starting today, Friday, Dec. 12. Their buying spree is open-ended, but many believe it could taper off by April. I have my doubts.

 

Investors were also surprised by several other comments by Fed Chair Jerome Powell. In the Q&A session after the FOMC meeting, Powell mentioned that the policy board expected the economy to accelerate next year to above 2 percent, which was higher than most investors had expected. Powell also said that while inflation was still not at the Fed's 2 percent target, the effect of tariffs would be a one-off price jolt and not the beginning of a spike in inflation rates.

 

As for the employment picture, he thought it might be faltering a bit. He revealed that the data in every monthly non-farm payroll report was 60,000 per month too high, due to how the data is collected and processed. As such, labor gains are often overstated. In summary, Powell believes the fed funds rate is now at a level where monetary policy is in equilibrium, neither too tight nor too loose.

 

Investors could not help but conclude from his comments that the Fed seems willing to run the economy “hot” in 2026. A faster-than-expected growth rate in the economy, moderate inflation, and an injection of $40 billions of additional liquidity into the financial system is a recipe for investing in ‘real economy' stocks.

 

Consumer discretionary, financials, industrials, small-cap, and cyclical stocks suddenly began to outperform. These are stocks with attractive valuations, reasonable growth, and that should stand to benefit from Fed policies in the overall economy. Traders began to rotate out of the narrow, more focused speculative “AI” momentum stocks that have outperformed everything else in the last 18 months.

 

The problem with that scenario is that technology stocks, in general, and Mag 7/AI Five in particular, comprise such a large share of the main equity averages that selling them cannot help but sink the entire market. Friday's sell-off was an example of the impact of this rotation. However, stocks have been climbing nonstop for the last several days, so this bout of profit-taking was overdue.

 

For me, the Fed's move to shore up the credit markets by buying $40 billion in short-term bills and treasury notes is the first shot across the bow of what I believe will be the monetization of the nation's debt. Short-term government debt accounts for two-thirds of all sovereign debt outstanding.

 

Both Treasury Secretaries Janet Yellen and Scott Bessent have steered clear of auctioning off long-term debt securities to cover our burgeoning debt costs. They knew that doing so would force yields on the 10- and 20-year bonds to rise much higher. Instead, they have used short-term treasury notes and bills in the auctions.

 

Enter the U.S. central bank. Does anyone else see this circle forming? The U.S. central bank (which prints money) is now buying $40 billion of U.S. short-term debt each month as the U.S. Treasury sells it to a shrinking market. This is not quantitative easing. This is the U.S. government buying back the securities it sold to cover our debt obligations by printing money.

 

I know most will disagree with my premise. After all, this is early days, and we won't truly know for sure until the spring, when supposedly these Fed purchases will no longer be needed. In the meantime, I will be listening for moves of this sort out of the government.

 

Readers should also prepare for the Supreme Court decision, expected in the next week or so, on the Trump tariff question. The way they address the legality of these tariffs will likely affect markets. I expect stocks to fluctuate for the next week or two. This pullback in the process has a little more to run, but then we should bounce back and test, if not exceed, highs.   

 

When the Federal Open Market Committee meets Dec. 9-10, it will decide to lower interest rates again — or not. The data is inconclusive at best, but stocks have rallied for more than a week in anticipation of a cut. Let's hope they are right.

 

The odds of a cut are over 90 percent in the betting markets. The last time they reached that level (at the Fed's previous meeting), they reduced rates by 0.25 percent. Traders expect the same size cut this week.

 

For the Fed, the decision comes down to determining the potential for additional job weakness in the months ahead. Here, the data becomes murky. The Bureau of Labor Statistics never collected the October employment numbers, citing the government shutdown. Some say that it was a convenient turn of events for the administration since more than 100,000 government workers left their jobs at the end of September.

 

In addition, the president's rapid changes in immigration policies may also be behind some of the weakening employment numbers. During the Biden years, an influx of immigrants was primarily responsible for much of the job growth. Higher immigration boosted payroll job growth by 70,000 jobs per month in 2022, 100,000 jobs per month in 2023, and even more than that in 2024, according to the Federal Reserve Bank of Dallas.

 

Before the pandemic from 2010 to 2019, the share of job growth attributable to immigration averaged 45 percent. The Congressional Budget Office's immigration projections expect a reversal of those numbers under the present administration. Net immigration will drop from 3.3 million in 2024 to 2.6 million in 2025 and 1.6 million or less in 2026. And that was before Trump's additional crackdown on third-world immigration announced last week. Many immigrants, legal or otherwise, have failed to show up at their jobs in fear of indiscriminate ICE raids.

 

As you can imagine, getting accurate data on this specific rate of immigrant job loss is difficult, if not impossible, for the Fed to obtain. The most recent ADP private payroll data for November showed a loss of 32,000 jobs versus an expected 10,000 job increase. The job losses were concentrated in construction and manufacturing sectors, where immigrants are known to work in large numbers.

 

Immigrants' participation in the workforce has increased the U.S.'s growth rate, so one can expect a slower rate of growth than would have otherwise occurred going forward. Immigration was a hot-button issue in the U.S. during the presidential elections. Polls found that most voters had approved of the president's immigration intentions. 

 

As such, many question whether the Fed should even care about the impact of immigrant job loss. The administration's policy is to reduce immigration despite the consequences.

 

Presumably, Congress, the administration, and voters care more about jobs for Americans than about the consequences of immigration policies for employment or growth.

 

In any case, the White House's clear intention is to install new people at the central bank who will facilitate the government's fiscal policies. Trump has already succeeded to some extent. He will also name a replacement for Chair Jerome Powell next month. Most investors expect an easy-money policy to unfold in the coming months, regardless of what the Fed does next week.

 

The issue today is that the market has already discounted an interest rate cut after a more than 5 percent gain in the last week and a half. Look out below if the Fed disappoints. I doubt that will happen. Once that meeting is out of the way, we are heading for new highs.