Your daily snapshot of market conditions and key developments
Major indicies are modestly higher, buoyed by tech and communication serveices while defensive stapples are lagging. This is consistent with a risk-on positioning ahead of year end. The backdrop for markets today reflects the year-end interplay between data lag, policy expectations, and investor positioning. The U.S. markets are trading cautiously with major economic data rolling in after delays, which include the Q3 durable goods orders due to be released today.
With the shortened trading week, expect to see seasonal volatility and light volume which will heavily influence price action and liquidity patterns into Christmas. Traditionally, stocks tend to rally in this shortened week known as a 'Santa Claus Rally'.
Inflation remains a key focus for investors, with headline measures running below forecasts and core inflation decelerating. This underpins expectations for easing rather than further tightening. There is also a high probability of a doveish FED chair being appointed in the new year further increasing the chances of easing. It will be critical to watch the economic and employment numbers to make sure the FEDs policy remains balanced.
Inflation measures are running below forecasts, moving the FED into easing with the market pricing in two rate cuts in 2026.
Yield curves remain focal. While yields have steadied with the U.S. with the 10-year Treasury yield around 4%, the real story is the term and credit premia embedded in corporate and sovereign curves as macro uncertainty still persists. Credit spreads in investment grade and high yield markets have calmed recently, signaling confidence in balance sheets and limited near-term stress.
While yields have steadied in the U.S., wider structural forces including labor softening and tariff impacts are still injecting variability into credit risk pricing as we move into 2026.
Durable goods orders were lower (-2.2%) than expected (-1.5%), and the consumer confidence (89.1) came in under expectations (91) dropping for the fifth straight month, while the preliminary QoQ GDP outperformed (4.3%) expectations (3.3%). It appears as though the consumer is reluctant to spend despite a strong preliminary GDP performance.
Information technology and Communication services are leading performance with ongoing structural demand and earnings resilience implying risk-on sentiment. Elevated metal prices (gold and silver) are supporting miners and related equities in the materials and commodities sectors. There has been moderate underperformance in the consumer discretionary/staples sectors as consumers confidence lags broader macro optimism. Credit markets remain well bid with tight spreads, though active repositioning contineus in anticipation of policy pivots.
Markets are pricing in two rate cuts in 2026, however with GDP growth surprising to the upside, we will be monitoring FED communications closely for any shifts in tone. Unemployment may play a larger role in FED decision making as well as election of a new, potentially doveish, FED chair.
May widen marginally if consumer confidence and employment data underperorm expectations into Q1.
There is still a relatively narrow leadership in U.S. equties with a themeatic concentation of technology and communications. We will be watching for a broadening of the market to truly indicate a risk-on appetitie for 2026.
Year-end market structures reflect a delicate balance: easing expectations underpin risk assets, but macro signals and seasonal liquidity warrant disciplined positioning. Fixed income offers relative value carries, credit remains tiered by quality, and equities trade with leadership concentration. With a shortened trading day and low liquidity expected for Christmas Eve, we will be closely monitoring our short term positions and exiting by 10:55am MT.