The year-end rally is still at the starting gate, though all the major indexes are positive for the trailing week and month. Tech is still down 4% for the trailing month as the rest of the market plays catch-up. We’ve gone several days with morning volatility where stocks open strong, then pull back to losses, and then motor higher the rest of the day with a modest pullback at the close. The VIX has been stable this week, well below the mid-November high.
Investors are trying to reconcile this “K-shaped” economy of a strong, well-off consumer and a struggling paycheck-to-paycheck consumer, as well as the huge momentum of the AI build-out, while uncertainty remains as to the timing of the return on investment of AI spending.
The caution is seen in the leading sectors over the last month, with healthcare leading at +7.3%, followed by basic materials +4.5%, energy +4.2%, and consumer staples +4.1%. Outside of healthcare, these are among the weaker sectors YTD. Consumer discretionary is down 1.3% for the trailing month and also weak YTD, but this sector is dominated by and . What we’re seeing is a correction in growth and momentum names, both of which lead YTD but are the only categories down for the trailing month. High dividend yield and dividend growth categories lead for the trailing month, as the now $8T in money markets may soon be shopping for yield as the expected Fed cuts begin next week.
One source of optimism for a strong year-end leading to further economic growth into 2026 is the rebound of small caps, with the Russell 2000 now leading the major indexes for the trailing week and month and is tied with the NASDAQ for the trailing 6 months, although it remains only outperforming the Dow YTD.
reported today came in below the forecast, both and especially initial claims, a bit of a surprise given the heightened concerns over the labor market. were weak, but it was a September number and tends to be volatile. The lack of further job weakness seems to have pushed up interest rates, with both the US 2-year and 10-year yields rising 4 bps. Bets for a next week, however, remain unchanged.
On the commodity front, is modestly higher, silver is down 1.8%, and copper is flat. is up 1% and natural gas is flat. Crypto is modestly higher with Bitcoin at $92.9K.
The trend remains positive, but still not as strong as a typical December, especially on the heels of a very good earnings season. We may have to wait for the Fed cut next week for the Santa Claus rally to begin.