Hello, I'm Eric Criscuolo, Market Strategist at the New York Stock Exchange, and this is Market Storylines. We’re here to keep you up to date on the key trends and events driving global markets. We’re recording this on Thursday, December 18, in the final full week of trading in 2025. This will be last Storylines of the year, unless there’s a huge write-in campaign for one on Christmas.
The end of the year is always a unique time in the markets. Holiday-shortened weeks, trading desks on vacation, year-end tax loss selling and portfolio window-dressing are among the dynamics that emerge all at once.
Rolling it back a bit, this week was set up by last week’s Federal Reserve meeting. The Fed cut rates as expected but Doves got some early stocking stuffers when Chair Powell wasn’t as hawkish as some thought he would be, and the Fed kick-started a new asset purchase program which will vacuum up $40B a month in T-Bills to help stabilize bank reserves.
Another major topic last week, though definitely not new to the scene, was AI. Time Magazine was at the NYSE to announce their Person of the Year. It was actually “People” of the Year, as the award was given to the Architects of AI. For stocks, the AI story started as a rising tide, lifting everything that had “AI” in a press release. However, it’s evolving as investors scrutinize financial statements more and try to isolate winners and losers rather than just buying baskets of names. The results are impacting not only flows within Tech but also creating market-wide rotations. Last week provided an example: The S&P 500 fell close to 1%, but the equal-weight index was the mirror image, gaining almost 1% while small caps did even better. A look under the hood showed growth and techy Mega Cap names sold-off, exemplified by post-earnings weakness in Oracle and Broadcom. Meanwhile sectors like Materials, Financials and the small caps easily outperformed. The Russell 2000 reached an all-time high.
This week isn’t shaping up exactly like last week. The S&P is down again but off its lows, with a nice rally as we record this. Most sectors are flat to lower for the week. Unlike last week, the equal-weight index is down, about the same amount as the market-cap index, while small caps are lagging. While we noted some tailwinds and pockets of strength for small caps, we’ve also seen a lot of the narrative baskets that we often mention, like quantum computing stocks, emerging nuclear providers and neo data centers, come under pressure. Cash flows and reasonable valuations have become more attractive. However, some of the AI angst that was running through the market and clipping mega caps was eased today with blowout results from Micron as well as reports that OpenAI was in discussions for a huge funding round.
Fittingly as we approach Christmas, Consumer Discretionary is the best performing sector this week, led by Travel, Leisure and restaurants while apparel makers are seeing a late week rally. One non-Tech segment that’s under pressure is Energy, down about 3%. The commodity has been weak, slipping close to the lows of the year despite renewed geopolitical tensions.
We’ll leave an in-depth year-in-review analysis to others, in part because I doubt you’ll keep your attention on me for much longer. But for a quick summary, the S&P is up about 16% this year. That’s on top of gains of more than 20% the prior two years. The record high is less than 2% above us. The Russell 2000 is lagging slightly, but up a solid 13%, and the S&P equal-weight index is up about 10%.
Moving to more macro topics, government data is trying to get back on track following the shutdown. By the looks of today’s inflation data we have some work to do. The data table in the release was borderline comical in its lack of line-item content. The main takeaway was that on an annual basis headline CPI was up 2.7% while core came in at 2.6%, both down markedly from 3% in September, with no data collected for October. That helps the cause of the dovish, rate cutting wing of the Fed, but the data is probably being heavily discounted due to the lack of details. In the labor market, initial jobless claims held steady while continuing claims increased from last week but stayed within range. Since the Fed meeting, the front end of the treasury curve has fallen but the long-end is around the same. The 30 year has even backed up a couple of basis points. That’s a dynamic to keep an eye on heading into next year.
Let’s take a look at what’s expected in the last days of 2025. Tomorrow, December 19 is a triple witch expiration, and quarterly index rebalances, always a potential for heightened volatility, as well as a potential turning point for stocks after the event. Keep an eye out during the last 5 trading days of this year and the first two days next year for the Santa Claus rally, an historically strong time for stocks. Economic data in the US for anyone who’s watching will include the 2nd estimate for Q3 GDP, Industrial Production, New and Existing Home Sales, weekly jobless claims and the weekly ADP employment report, as well as the minutes from the latest FOMC meeting. On the earnings front, FedEx and Nike are among the last major reports for the year. The Supreme Court’s ruling on the legality of the administration’s tariffs could potentially come before year-end, as can President Trump’s nomination of a new Fed Chair. And of course, there’s Christmas and New Years! On that note, we’ll leave you with a highly edited holiday poem.
Twas the week before Christmas and all through the Market
Every trader was screening for one last 10x target
The AI was running in the data center at full bore
In the hopes that a new Fed Chair would cut rates even more
The hedge funds were looking at their books with cheer
But praying a Trump tweet wouldn’t blow up their year
When out in commodities, gold took off in a run
Only for Silver to say you think that’s cool? Watch this son.
As the crypto investments were stuck in the mud
Down even more crude oil came with a thud
However, A look at the charts with a long-term view
Came a realization that ups and downs are nothing new
As we close out this year and look forward to next
Merry Christmas to all. May next year’s returns be your best yet.
That’s a wrap on this week and this year. You can put down the egg nog and watch Market Storylines on TV.NYSE.com or on the NYSE YouTube Channel. You can also listen on the Inside the ICE House Podcast feed. Thanks for joining me. I’m Eric Criscuolo. Happy Holidays everyone.