@theMarket: Markets Enter Last Leg of a Good Year

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.