Happy Holidays and Wishing Everyone a Healthy and Prosperous New Year

1. US Economy Grows at Fastest Pace in Years With 4.3% GDP Gain — Inflation-adjusted gross domestic product, which measures the value of goods and services produced in the US, increased at a 4.3% annualized pace, a Bureau of Economic Analysis report showed Tuesday. That was higher than all but one forecast in a Bloomberg survey and followed 3.8% growth in the prior period.
The BEA was originally due to publish an advance estimate of GDP on Oct. 30, but the report was canceled due to the government shutdown. The agency typically releases three estimates of quarterly growth — fine-tuning its projections as more data comes in — but it will only release two for the period leading up to the longest shutdown on record.
2. Time just jinxed the AI stock-market rally with its 2025 person of the year — Pioneered by analyst Paul Macrae Montgomery in his newsletter “Universal Economics,” the Time Magazine Cover Indicator — also known more generally as the Magazine Cover Indicator — posits that if a popular investment theme makes it to the cover of a general-interest publication like Time magazine, then the end is probably near. Time magazine announced its selection for person of the year. For 2025, it awarded the honor to a group of people, as it sometimes does: “The Architects of AI.” Brent Donnelly, president of Spectra Markets, crunched the numbers, and found that the person-of-the-year track record as a counterindicator is actually quite remarkable. Although the sample size is small, by Donnelly’s count — there have only been nine instances so far, including this year’s, in which the Time cover represented an investable person, company or category — it has been surprisingly effective. Investments, whether in companies or trends, tied to a person-of-the-year pick were higher one year later just 13% of the time, according to Donnelly. After two years, that figure rose to 25%. The only example that didn’t sell off during the following year was Intel Corp., whose co-founder and then-CEO Andy Grove was tapped as 1997’s person of the year. Intel shares were hammered a few years later, when the dot-com bubble burst.

“The market is a device for transferring money from the impatient to the patient.” – Warren Buffett

1. U.S. Unemployment Rose in November ​Despite Job Gains — Nonfarm payrolls increased 64,000 in November after declining 105,000 in October, adding to the choppiness seen in the labor market in recent months. The unemployment rate rose to 4.6%, according to Bureau of Labor Statistics data out Tuesday, continuing its upward climb as many out-of-work Americans struggled to land new jobs. The decline in October payrolls, which was the largest since the end of 2020, was due to a 162,000 plunge in federal government employment as workers who accepted the Trump administration’s deferred resignation offers officially dropped off payrolls.Fed officials are split over whether more cuts are needed next year. The median Fed official penciled in just one reduction in 2026, according to rate projections released alongside the decision, but some policymakers see no further cuts. Traders, meanwhile, have been counting on two.
2. October Retail Sales Fell Flat. Weak Car Sales Weighed On the Data— Retail sales were virtually unchanged in October from September, according to data released Tuesday by the Census Bureau. Economists polled by FactSet expected a 0.05% increase. Sales rose 3.5% on an annual basis. September’s headline retail sales were revised lower to a 0.1% monthly increase from a 0.2% increase previously. That weaker vehicle sales weighed on October’s figure—sales at car and parts dealers were down 1.6% from September—wasn’t a surprise. Many people rushed to buy a car earlier this year, fearing tariffs would push costs prohibitively higher later on.
3. US Core CPI Eases to Four-Year Low in Shutdown-Impacted Report — The core consumer price index, which excludes the often-volatile food and energy categories, increased 2.6% in November from a year ago, according to Bureau of Labor Statistics data out Thursday. The overall CPI climbed 2.7% in November from a year ago. The longest-ever government shutdown prevented the BLS from collecting much of the October price data. That not only limited the agency’s ability to determine month-over-month changes for the broader measures of inflation, but some economists noted it likely impacted the annual November figures as well. Despite numerous caveats, the report offers some hope that inflationary pressures are easing after remaining stuck in a narrow range since early this year. The BLS said the core CPI rose just 0.2% over the two months ended in November, restrained by declines in costs of hotel stays, recreation and apparel. Prices of household furnishings and personal care products rose.
4. Mortgage Rates Are Falling but Owners Still Won’t Sell — Nearly 30 million households, or 54% of primary mortgage-holders, have mortgage rates at or below 4%. They were able to buy homes or refinance their mortgages when rates fell to 3% or lower in 2020 and 2021.
Now, many of those who want to move don’t feel it is worth it to buy a home and take on mortgage rates that have doubled. This “lock-in effect” has helped freeze the housing market for three straight years, suppressing the number of U.S. homes for sale and keeping inventory well below historic levels for most of that period. The Federal Reserve cut short-term interest rates this month but signaled it might be done with further rate cuts for now. Mortgage rates edged lower to 6.21% this week, holding near the one-year low reached in October, Freddie Mac said.

The week ahead — Economic data from Econoday.com:

“The elements of good trading are (1) cutting losses, (2) cutting losses, and (3) cutting losses.” – Jesse Livermore.

1. Fed Cuts Rates With Three Dissents, Projects One Cut in 2026 — The Federal Open Market Committee voted 9-3 Wednesday to lower the benchmark federal funds rate by a quarter point to a range of 3.5%-3.75%. It also subtly altered the wording of its statement suggesting greater uncertainty about when it might cut rates again. When asked if it were a foregone conclusion that the Fed’s next move would be a cut, Powell demurred, but added that he didn’t see a rate hike as any official’s base case. Wednesday’s dissents and the rate projections highlight divisions among policymakers that have emerged over whether weakness in the labor market or stubborn inflation represent the larger danger to the US economy.
2. Some Republicans Break With Leaders in Healthcare Fight — A growing chunk of Republicans in both the House and Senate are breaking with party leaders and saying the GOP should extend expiring Affordable Care Act subsidies, seeing that as the only way to avert big cost increases for 20 million households next year and buy time for a bigger overhaul. Already, some GOP lawmakers have sponsored or signed onto bills that would extend the tax credits for one or more years, while including changes designed to crack down on fraud and limit eligibility to exclude higher-income households. They include Sens. Susan Collins (R., Maine), Jon Husted (R., Ohio) and Roger Marshall (R., Kan.)—all of whom are up for election next year—and vulnerable House Republicans like Reps. Rob Bresnahan (R., Pa.) and Mike Lawler (R., N.Y.).
3. US Trade Deficit Unexpectedly Shrinks to Smallest Since 2020 — The goods and services trade gap shrank nearly 11% from the prior month to $52.8 billion, Commerce Department data showed Thursday. The median estimate in a Bloomberg survey of economists was for a $63.1 billion deficit. Large monthly swings in trade this year related to US implementation of tariffs have introduced similar volatility in the government’s measure of economic activity — gross domestic product. The September trade figures will help economists fine tune their estimates for third-quarter GDP.

The week ahead — Economic data from Econoday.com:

1. Payrolls at US Companies Fall by Most Since 2023, ADP Reports — The U.S. labor market slowdown intensified in November as private companies cut 32,000 workers, with small businesses hit the hardest, payrolls processing firm ADP reported Wednesday. With worries intensifying over the domestic jobs picture, ADP indicated the issues were worse than anticipated. The payrolls decline marked a sharp step down from October, which saw an upwardly revised gain of 47,000 positions, and was well below the Dow Jones consensus estimate from economists for an increase of 40,000.
Larger businesses, entailing companies with 50 or more employees, actually reported a net gain of 90,000 workers. The biggest loss came in professional and business services, which saw a decline of 26,000. Others shedding jobs included information services (-20,000), manufacturing (-18,000), and financial activities and construction, both of which saw losses of 9,000.
2. China’s Services-Sector Activity Growth Slows — The RatingDog general services purchasing managers index fell to 52.1 in November from 52.6 in October, marking the lowest level in five months, according to a statement released Wednesday. Service providers continued to cut staffing in November, though the pace of reduction slowed slightly. Companies surveyed by RatingDog remained optimistic about the outlook, but the future business activity expectations index fell to its lowest level since April.
3. Trump Tightens Work Permits for Migrants, Expanding Crackdown on Legal Immigration — Work permits issued to immigrants who have applied for asylum or a range of other humanitarian programs will now be valid for 18 months rather than five years, under a new policy announced Thursday by the Trump administration. In the past week, Trump has called for a broad “reverse migration” of legal immigrants in the U.S., including from countries such as Afghanistan. A day after the shooting, Trump posted to his Truth Social platform that he planned to “permanently pause migration from all Third World Countries,” and his administration is working on expanding the list of countries subject to a travel ban. The shortened expiration dates for work permits will primarily affect immigrants seeking asylum or other forms of humanitarian protections, including refugees, immigrants who have won their asylum cases, or who have another form of deportation relief known as withholding of removal.
4. Core Index Decelerates for the First Since April — The core personal consumption expenditures price index, which excludes volatile food and energy prices, indicated a 0.2% monthly rise while the annual rate was 2.8%. The monthly rate was in line with the Dow Jones consensus, but the annual level was 0.1 percentage point lower. The core annual rate edged down from 2.9% in August. In addition, headline PCE increased 0.3% for the month, putting the annual inflation rate also at 2.8%, according to the department’s Bureau of Economic Analysis. Both of those readings were in line with expectations though the annual rate was up 0.1 percentage point from August. Goods prices surged 0.5% on the month as President Donald Trump’s tariffs continue to work their way through the economy. Services prices were up just 0.2%. Food rose 0.4% while energy was up 1.7%.

The week ahead — Economic data from Econoday.com:

1. U.S. Retail Sales Rose 0.2% in September, Below Expectations — Purchases at stores, restaurants and online increased a seasonally adjusted 0.2% in September from the prior month, the Commerce Department said Tuesday. That was below the 0.3% increase economists had expected, and marked a cooling from the 0.6% increase clocked in August. September’s retail sales report suggested consumers closed out the summer months on a weaker footing. Consumers reined in spending in a number of key categories, including vehicles, electronics, clothing, sporting goods and at online retailers. Still, spending at bars and restaurants rose a solid 0.7%, and spending at personal care and grocery stores also rose.
2. Airbus issues major A320 recall after flight-control incident — Airbus said in a statement a recent incident involving an A320-family aircraft had revealed that intense solar radiation may corrupt data critical to the functioning of flight controls. For about two-thirds of the affected jets, the recall will result in a relatively brief grounding as airlines revert to a previous software version, industry sources said. But the scale of the operation is expected to cause significant disruption, emerging just ahead of the busiest travel weekend of the year in the United States.
3. Trump Says He Is Canceling Biden Executive Orders Signed With Autopen — President Trump said Friday he was revoking all executive orders former President Joe Biden signed with an autopen, escalating his battle with his predecessor over the use of the signature proxy device. Both Democratic and Republican presidents have used autopens, devices that replicate signatures. Trump has said autopens shouldn’t be used on important documents. He said earlier this year that he has used an autopen for unimportant papers.
Presidents are legally allowed to undo executive orders signed by their predecessors. Trump could potentially revoke Biden’s legislation or the dozens of pardons he issued, including to family members. Biden also gave thousands of commutations at the end of his presidency. Still, legal scholars say there is no mechanism to undo clemency after it is granted.

The week ahead — Economic data from Econoday.com: