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.

 

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.

Markets were poised for a bounce, and Nvidia delivered. The AI semiconductor giant beat earnings handily, and its forward guidance was even better. The company's stock spiked higher and then fell. Where Nvidia goes, so goes the market. 

 

After four down days in a row, Thursday saw all the main indexes gain more than 1.5 percent, with the tech-heavy NASDAQ gaining 2.5 percent. It was a classic dead-cat bounce. The sigh of relief from the bulls could be heard across markets worldwide, as this single stock's third-quarter results were important enough to lift most stocks. But the respite proved temporary.

 

By mid-morning Thursday, the AI darling began to falter, giving back all its gains and then some. Readers should know that here in the U.S., Nvidia makes up 8 percent of the benchmark S&P 500 Index, and together with 19 other stocks now represents 50 percent of that index.

 

As I wrote recently, investor concerns that too much money was being spent on AI with no returns in sight returned to the forefront, even though the company's CEO, Jensen Huang, said sales of its newest chip were off the charts. Investors didn't care, and markets across the board were down at least 1 percent at the closing bell Thursday afternoon. 

The excitement over Nvidia's results completely overshadowed the first non-farm labor jobs report since the government shutdown, at least at first. The U.S. economy supposedly added 119,000 jobs in September, which was above economists' estimates of 50,000. In this market, that data was so stale it should have been next to useless, but something, no matter how old, is better than nothing.

 

And even if the numbers were up to date, many on Wall Street have come to doubt the objectivity and integrity of government data. The Bureau of Labor Statistics claims it can't capture the data to release October's results, or that the results may only be partially available. Is that a coincidence, given that the mass layoffs in the government sector would have shown up in that month's data?

 

I do not remember these data glitches happening in past shutdowns. It begs the question: has the BLS suddenly become more incompetent since the firing of its last head, or are statisticians being coached by outsiders?

 

In any case, the bears took the numbers and ran with them, claiming that stronger payroll numbers will convince the Fed to hold off on cutting rates until more information becomes available. The next payroll report will be delayed until the middle of December (another coincidence). This leaves the Fed without the data they need to make an informed decision on interest rates in time for the Dec. 9-10 FOMC meeting. In which case, any decision they make will be at best a guesstimate. I am betting they cut interest rates.

 

In the meantime, I promised volatility in November, and that is what markets have delivered. As the lion's share of robust corporate earnings results has faded, support for equity indexes has faded with them. As such, equity indexes draw ever closer to my downside targets. Bitcoin and other cryptocurrencies are leading the markets lower. I had warned investors to expect a pullback in this asset class. We are getting it.

 

Traders are using Bitcoin as a leading indicator of investors' risk level. Given its speculative nature, the fall from $126,000 to its current level (below $84,000) is a clear indication that market sentiment is definitely risk-off. I see a bottom for Bitcoin around $74,000-$76,000.

 

Precious metals, another speculative asset class, are holding up a lot better. This is another area where I advised readers to expect a decline and be cautious in adding to dips. Although volatile, gold is down about 10 percent from its highs and is still consolidating after its spectacular gains this year.

 

Both crypto and gold will make no headway until the U.S. dollar turns down once again. Heading into Thanksgiving week, markets are approaching my target levels. NASDAQ has declined by about 8 percent while the S&P 500 Index is down less than half that. I expected a 4-6 percent decline, so my downside risk from here is about 1.5 percent for the S&P.

 

What could save the markets from further downside would be an interest rate cut when the Fed meets in December. I suspect that will happen given my scenario of better inflation numbers in the next two months and a somewhat weakening employment picture. Until then, stay invested, grin, and bear it.

 

After six weeks, the macroeconomic data that disappeared during the shutdown will begin to flow once more. The question Wall Street is asking is, will it be good, bad, or indifferent for the markets?

 

Readers should pay attention to the slew of expected government reports that are expected to be released this coming week. The Consumer and Producer Price Indexes, average hourly earnings, average weekly earnings, factory orders, durable goods, retail sales, housing starts, building permits, and the most important number of all, the non-farm payrolls (NFP) report, are expected to be announced on Friday. The markets are worried.

 

The NFP report will be critical. Investors believe that the Federal Reserve Bank will base its decision on whether to cut interest rates again at its Dec. 10 meeting on the state of the job market. Given that missing October inflation and jobs data may never be reported, according to the White House, it leaves the markets hanging and elevates the importance of the coming deluge of data.

 

At present, the Federal Open Market Committee is a hung jury, split roughly down the middle between voting members who want another rate cut and those who don't. The betting markets have dropped their view of a December rate cut from almost a sure thing to a little below 50/50.

 

The stock market has yet to discount those lower odds but is in the process of doing that right now. The Fed has made it clear that the health of the jobs market is just as crucial as reigning in inflation, if not more so. If the number of jobs continues to rise, that will give the Fed a reason to stand down and wait. The bulls are hoping to see some job losses, but not too many, just enough to reduce rates by another quarter point.

 

The bears contend that employment is dropping like a stone, and the numbers will prove it. They argue the Fed will need to cut by 50 basis points. Why would that be bearish for stocks? Because it could mean that a sharp decline in job growth would indicate the economy is rolling over. That would panic the markets. Oh, the webs we weave.

 

As readers surely know by now, the government shutdown is over, at least until Jan. 31. Then we get to do this all over again. If it were to happen again, markets, which had basically ignored the drama in Congress, might not be as understanding the second time around. What was the point of this one? Let me know if you figure it out. Otherwise, the country has lost billions of dollars or more in growth with nothing to show for it.

 

My own forecasts indicate that we will see less inflation over the next 2-3 months. While economic growth will moderate, it will not lead to a recession. Employment should decline somewhat. This is due to the ongoing labor disruption caused by the president's immigration policies and the displacement of jobs by AI. If I am right, the chances of another Fed cut are higher than the market anticipates.

 

On a side note, the CPI basket of items has been pared back under both the Biden and Trump administrations. The government has removed some of the worst inflationary components, including meat, coffee, new cars, trucks, and motorcycles, as well as long-term care and vehicle insurance, electricity, natural gas, and energy services. Given this list of excluded items, it is a mystery why anyone really believes that the CPI accurately reflects inflation.

 

Did you notice that the Trump administration is rolling back tariffs on beef, coffee, and bananas? I have been writing about how Trump tariffs are not only a tax but a tax on the food we eat, among other things. Donald Trump, his Treasury Secretary, and most Republican members of Congress have denied this, claiming that tariffs are not the cause of higher prices — until now.

 

Finally, the truth is coming out. Trump recently acknowledged that U.S. consumers are "paying something" for his tariffs. Don't look for him to admit the truth on his tariff taxes, especially in front of a Supreme Court decision on that subject.

 

In my last column, I mentioned that investors were worried that the AI boom in stocks had reached a peak. This week, we see the results of that narrative. AI darlings have led the decline, taking the rest of the market with them. Remember these two key points: the markets will remain volatile, and I expect a 4 to 6 percent decline in the averages.

 

This coming week, we also have the AI King of Kings, Nvidia, reporting earnings on Wednesday. At this juncture, where Nvidia goes, the market follows. Remember, do not think "down" when I use that word. Volatility cuts both ways, and given the global flows of money, that means both big up and big down moves. Strap in, stay invested, and hold off on buying dips for now.   

 

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.

It wasn't supposed to happen this way. Historically, November and December have been considered the best months of the year for stocks. The problem is that history has been turned upside down this year.

 

Take the fact that the U.S. Supreme Court is hearing a case on tariffs that have not been this high for 100 years. And then there are the lofty valuations of companies that are investing trillions of dollars in artificial intelligence. Many investors believe AI will usher in a new age for the world. And in case that doesn't convince you, the sudden weakening in private jobs for October was the lowest in years. That may not qualify as history, but the present administration's immigration policy and its impact on employment certainly do.

 

Now, some might argue that a decline would be beneficial for markets, as this melt-up in the averages has persisted for weeks. It has been so long since we have had more than a one- or two-day decline that most investors are conditioned to buy any dip, no matter how shallow.

 

But why now, you might ask. Perhaps because markets didn't decline as expected in September and October. Then there is the "what-if" scenario surrounding one of the lynch pins of Donald Trump's economic policy. "What if" the court rules against him? "What if" the government is forced to refund billions of dollars in collected tariffs? And if so, what will happen to the deficit that has been declining?

 

If you believe the president, who claims an adverse ruling on his tariffs could "literally destroy the United States," then you are most likely one of those who sold stocks this week. I suggest you read my latest column, "Trump's tariffs and the holidays," for my thoughts on any fallout from this court case.

 

Thanks to the continued government shutdown, which has now become the longest in history, the dearth of government data has forced markets to focus instead on private sector research data. One such data point released this week was from global outplacement firm Challenger, Gray & Christmas. It showed that last month was the worst October for layoffs announcements since 2003.

 

In the absence of the non-farm payroll data, which was scheduled to be released on Friday but wasn't, investors took the weak employment numbers at face value. Investors worry that, given the weakness was among existing job holders, rather than the absence of immigrants (legal or otherwise) seeking jobs, economic growth overall may be slowing.

 

At the same time, however, another service, ADP Private Payrolls, said the number of jobs added grew by 42,000 last month. The jobs were gained in the old economy, specifically in trade, transportation, and utilities. Great news for some, but none of those jobs came from AI-related industries.

 

Why is this important? Trillions of dollars are being invested in AI each year, including this year, last year, and the year before. This is the area that the market agrees will become a primary driver of economic growth in the future, starting now. Instead, information services and professional and business services lost jobs in an industry that should be hiring like crazy in these early stages of build-out.

 

More than 85 percent of companies that have reported quarterly results have beaten estimates; however, there is a catch. I had thought that these stellar earnings results would support markets. They have to some extent, but something is changing. Many of the AI names have declined after their earnings results were released.

 

That is a new behavior. In the past, traders have been buying AI stocks regardless of the company's earnings, whether good, bad, or indifferent. Investors are now questioning the sustainability of the AI boom and the ability of companies to justify their high valuations based on profit growth.

 

I half suspect that consumer holiday spending was front-loaded this year to avoid tariff-induced price hikes. If so, flat spending may not be taken kindly after years of increased end-of-year sales. Combine that with the AI valuation fears, tariff court case, and the government shutdown, and this wall of worry has grown too high for the average investor.

 

And even though the government shutdown continues, I maintain that it will be resolved sometime this month. Due to the increasing air travel fubar brought on by the shutdown, starting today, the FAA will cut 10% of flights at the 40 biggest airports as it prepares for a worst-case scenario of delays and canceled flights. Until now, most Americans have not been unduly affected by the shutdown. As Thanksgiving approaches, the holiday flight schedules will become far more critical to the nation. I expect irate calls to Congressional representative offices are climbing by the minute.

 

Marketwise, this pullback is a good thing. I have written several times in the last month that we needed a break from the relentless climb that has created an extremely worrisome condition in the markets. Hopefully, we will see a 5-6% decline in the averages, which will prepare us for a year-end rally. 

 

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.