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.   

 

Whether you know it or not, Americans are drinking less. This year, the percentage of Americans who say they drink alcohol has fallen to a record low. But don't kid yourself, 54 percent of Americans said they still do drink booze, according to a recent Gallup poll, which has been tracking U.S. drinking since 1939.

 

I can hear Bill Wilson, the father of Alcoholics Anonymous, cheering from his grave. The trend of easing off the booze has been in place for several years among some segments of society. Health-care concerns are reportedly spooking the population. It used to be that "one or two drinks a day" was OK. I'm sure the liquor companies lobbied hard for that verdict, but the attitude has reversed. Thanks to recent research, alcohol at any level could be hazardous to your health, exposing consumers to an increased risk of cancer, depression, and anxiety.

 

And as usual, it is the younger generations that have paved the way. Their abstinence evolved a decade ago and has now settled at an even 50/50 this year among 18- to 34-year-olds. This compares to 56 percent among older Americans. At first, I suspected that youngsters simply switched from one drug to another, like marijuana, but the research says that ain't so. Marijuana use is higher than it was before it was legalized, but grass consumption today has seen a steady decline over the past four years as well.

 

Researchers believe that COVID-19 had something to do with the declining trend in alcohol intake. During the pandemic, alcohol consumption skyrocketed, especially among older adults. Fear, boredom, and isolation triggered excess drinking. Their children were locked down with adults, and they witnessed their parents lose control due to their daily drinking.

 

The government launched an education campaign warning of the impact of excessive drinking and advising on how to stop, or at least moderate, drinking. The media chimed in, especially on social media, and before long, there was a generational shift in perception from drinking is "OK" to "not OK."

 

The thinking went from it might still be acceptable to drink, but losing control in public was a sure way to be filmed on a hundred phones and posted on social media in minutes. That would be devastating and avoided at all costs. It is no longer cool to drink, especially in excess to the point of inebriation, because that was what parents did.

 

But there were other reasons as well. Although beer is still the beverage of choice among the population, youngsters did not want to be seen drinking something their parents consumed, like craft beer. Besides, alcohol in any form has become too expensive for many.

 

With all this new adverse research data, one would think that both the beer and liquor industries would be sucking wind. They are, but the trend is still not life-threatening. In fact, on average, according to IWSR, a global leader in alcohol beverage data, the overall number of drinks U.S. adults have per week has not changed in decades, hovering between 10 and 12 since 1975. They did admit that it was the lowest level in 30 years.

 

To survive, the beer industry is busy stabilizing its customers' consumption through marketing and advertising, while at the same time looking to the future. They are shifting along with consumer habits by rolling out nonalcoholic versions of their leading beer brands. Beer volume has been flat or declining since 2007. It is only growing by a mere 1 percent on average, but that is better than wine and the hard stuff.

 

The wine and hard liquor sector has had mixed results. Wine volumes this year have been in decline, experiencing over an 8 percent decline in both volumes and revenues. The spirits side of the beverage industry has suffered slightly fewer declines. But there are bright spots. tequila and mezcal, for example, are performing well, as are sales of ready-to-drink alcoholic beverages.

 

Of course, one should expect the industry to counterattack, and they are. Talker Research (on behalf of Josh Cellars, a wine producer) announced survey results in November. Of 2,000 Americans aged 21-44 polled, they found that 77 percent expect to drink the same amount or more alcohol during the holidays this year.

 

They also reported that nearly 80 percent of Gen Z and millennial respondents (who drink) will consume more alcohol during the holidays than at other times of the year. Well, good for them. After all, I can see the desire for sipping a hot toddy as "A Christmas Carol" plays in the background or toasting the New Year while watching the ball drop in Times Square.

 

However, overall, I applaud the younger generations for becoming a lot smarter and much sooner than we Baby Boomers. For me, I raise my glass of sour cherry juice and say, "Here's looking at you, kid."

 

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.

 

The COVID-19 pandemic was supposed to spell the end of the cruise line industry. These massive ships, crammed with sick passengers, were labeled "petri dishes" by the media, infectious disease experts, and politicians. Six years later, the sector is alive and growing.

 

AAA projects that a record-breaking 21.7 million Americans are planning to hop aboard an ocean cruise in the coming year. If so, that would mark the fourth year in a row the cruise industry has experienced record passenger volume. This year, more than 20 million passengers flooded the gates to new King Kong-sized vessels, offering fixed-price packages and promising a wide variety of cruise options for every age and pocketbook.

 

If you break down the demand demographically, Baby Boomers still make up the majority of cruise-goers, followed by Millennials. Most adults travel with a companion. Nearly 50 percent of U.S. cruise passengers are cruising as a couple.

 

About 65 percent of adult passengers are 55 or older. However, 27 percent are from younger generations (35 to 54 years old), and 7 percent are aged 18 to 34. The trend also includes multi-generational groupings who choose to take cruise vacations together. One quarter of Baby Boomers who like cruises do so with their adult children, and roughly 29 percent of Gen Z members cruise with their parents.

 

A survey identifying trends shaping the modern cruise experience found that Millennials and Gen Z are increasingly enthusiastic about opting for a cruise vacation. Key among the changes in attitude was the affordability of shorter itineraries, which allow younger generations to vacation more frequently. They much prefer a 2-to-4-day sailing to the more traditional 5-to-7-day voyage.

 

The Caribbean remains the most popular destination, attracting 72 percent of American cruise passengers. As a result, Florida ports are the busiest in the world due to this vacation demand. The new mega-vessels ply the Caribbean, Mediterranean, and Northern European waterways. Smaller vessels are more common in Northern Europe for expedition cruises and in the Mediterranean for luxury trips.

 

More than half of the 4,500 people surveyed had already cruised, and nearly 30 percent planned to do so again over the next two years. Of those planning another cruise, 36 percent were born between 1981 and 1996. The average age of a cruise guest is now 46 years old, and 36 percent of all cruisers are now under 40.

 

Cruise lines have quickly adjusted to these preferences and begun marketing 3- to 5-night cruises. Another popular consumer preference is the chance to visit a private island. Cruise lines are investing big bucks to create this type of destination or upgrade existing ones. Cruise operators know that the main draw for vacationers is convenience and value, especially today.

 

As such, cruise companies bundle lodging, meals, and entertainment. The price often equates to a lower per-night cost than on a land-based vacation. Celebrity-level chefs and Broadway-level shows have replaced the rubber chickens and crew member chorus offerings of yesteryears.

 

Modern-day ships are increasingly resembling ocean-going resorts, complete with floating buffets and satisfied customers—couples like the built-in date-night dining and entertainment options. Families appreciate the kid clubs, water parks, and multi-room lodgings. An expanding list of destinations, such as a cruise to Antarctica or the Arctic, excites and attracts younger adventure seekers.

 

More than 90 percent of U.S. cruise passengers rate their experience as good or very good, according to AAA, and 91 percent have taken multiple cruises. With those kinds of repeat rates, cruise lines expect growth to continue well beyond the next few years. Wall Street likes what it sees and has rewarded these companies with higher stock prices. Rather than rest on their laurels, cruise companies worldwide are expanding their fleets, building destination islands, and upgrading their offerings hand over fist.

 

 

This holiday-shortened week is usually a good one for stocks. Volumes are lower, and as the week progresses, fewer participants are at their desks. Whatever the reason, markets recouped all last week's losses.

 

The pullback may be over. At last tally, the S&P 500 Index pulled back about 5 percent. We may retest the lows, but we will cross that bridge if we come to it. In the meantime, let's look at some economic numbers.

 

Government data is beginning to be released, albeit slowly and in fits and starts. U.S. initial jobless claims for the period ending November 22 fell, the third consecutive drop, and are now at their lowest level since February. The data reflect a low magnitude of new jobless claims in the economy.

 

However, retail sales for September came in below economists' expectations, climbing a mere 0.2 percent, which was half the reading that economists expected. To put that in perspective, the August data showed a 0.6 percent gain.

 

This data point is important because consumer spending has a massive influence on economic growth in this country. It represents 67.7 percent of the U.S. Gross Domestic Product. If we couple that sales weakness with the government shutdown that began in October, consumption of goods and services will likely decline in the last quarter of the year.

 

During the earnings season, which ended last week, Target, Home Depot, and Walmart have all indicated that their businesses are facing ongoing pressure from lower and middle-income households due to higher inflation, tariffs, and interest rates that have squeezed budgets.

 

Producer prices for September also rose slightly on the back of higher energy costs. Investors were expecting the advanced estimate of third-quarter GDP this week, but were disappointed. The Bureau of Economic Analysis canceled it along with the preliminary corporate profits report. That leaves investors and policymakers in the dark as we enter the crucial holiday shopping season.

 

We already know that consumers of all income levels (except the very top earners) are trading down this season or have front-loaded their holiday purchases to avoid Trump's tariffs. In my October columns, "Trump's Tariffs and the Holidays" and "Americans Are Getting Stingier," I warned readers that holiday sales might not be as strong as many Wall Street analysts expect. I hope I am wrong.

 

White House economic adviser Kevin Hassett is now the leading contender to become the next Federal Reserve Bank chair. Treasury Secretary Bessent, tasked with interviewing replacements for outgoing Chair Jerome Powell, said it was possible there would be an official announcement of the president's choice in December.

 

If Hassett is selected, there is no doubt that not only will interest rates be cut deeply, but he will also do everything he can to further the administration's economic policies. As a member of both Trump administrations, he is a champion of Trump's tax policies, trade policies, deregulation, and public health initiatives. His appointment would likely damage the notion of an independent central bank in the U.S.

 

As for the markets in this holiday-shortened week, stocks have gained every day since last Friday, anticipating that the Fed will cut interest rates once again when it meets on December 9-10.

 

We may see some profit-taking in the week ahead, but we are now officially in a period when large global flows of funds will need to find a home. Corporations pay yearly bonuses. Savers fund their retirement accounts. Banks provide additional liquidity. This liquidity flow occurs almost every year and, unless something out of left field occurs, much of this new money finds its way into stock markets. Many call it the Santa Claus rally, although Saint Nick has little to do with it. I hope you all had a Happy Thanksgiving. Now go out there and shop (or not).

 

Bill Schmick is the founding partner of Onota Partners, Inc., in the Berkshires. His forecasts and opinions are purely his own and do not necessarily represent the views of Onota Partners Inc. (OPI). None of his commentary is or should be considered investment advice. Direct your inquiries to Bill at 1-413-347-2401 or email him at bill@schmicksretiredinvestor.com.