U.S. futures are lower along with global markets after a mostly quiet night of news as the solid 2025 stock market advance continues to be digested into year-end.
Economically, China’s CFLP Composite PMI rose to 50.2 in December from 49.5 in November vs. (E) 49.7 but the strong data print failed to generate any market enthusiasm overnight.
Today, there is one final noteworthy economic report before the end of the year: Jobless Claims (E: 218K) and investors will be looking for a Goldilocks print to shore up soft-landing expectations.
Additionally, the Treasury will hold auctions for 4-Week, 8-Week and 4-Month Bills at 11:30 a.m. ET and markets will want to see healthy demand to support dovish Fed policy expectations for 2026.
Finally, there are no Fed speakers today and the bond market will close early (2:00 p.m. ET) ahead of the New Years Holiday as markets cap off another solid year of stock market returns.
Stocks gapped lower and churned sideways into the afternoon as traders digested mixed, but lesser-followed, economic data and continued to eye geopoliti-cal tensions ahead of the December Fed minutes re-lease. The S&P 500 barely reacted to the FOMC minutes and proceeded to churn sideways to close down 0.14%.
U.S. equities began yesterday’s session with continued sluggish price action amid largely quiet newswires and only “second-tier” economic releases in the morning. Economically, home prices rose at a faster-than-anticipated rate in October according to the Case-Shiller.
Equities
Stocks gapped lower and churned sideways into the afternoon as traders digested mixed, but lesser-followed, economic data and continued to eye geopoliti-cal tensions ahead of the December Fed minutes re-lease. The S&P 500 barely reacted to the FOMC minutes and proceeded to churn sideways to close down 0.14%. U.S. equities began yesterday’s session with continued sluggish price action amid largely quiet newswires and only “second-tier” economic releases in the morning.
Economically, home prices rose at a faster-than- anticipated rate in October according to the Case-Shiller Home Price Index and FHFA House Price Index releases, while the Chicago PMI narrowly missed estimates (39.5). The data was largely met with a yawn by those at thinly attended desks in a holiday-shortened week.
Stocks slipped further into the red late morning following a headline that the U.S. and Israel launched joint strikes on Houthi assets in Yemen on Tuesday evening in re- sponse to Houthi attacks in the Red Sea. That added to recent concerns over global geopolitical tensions which have included Russia’s war in Ukraine, Israel’s war in Gaza, and unrest in the Middle East.
The S&P 500 dropped to session lows around 1:00 p.m. ET when the FOMC minutes were released. But, the index only lost about 0.2% of value on the day and quickly re- covered to trade around the unchanged line for the balance of the session. Ultimately, the S&P 500 closed down 0.14% while the Nasdaq finished fractionally positive (+0.07%) thanks to modest gains in the mega-cap tech names.
Looking at stocks, energy (XLE: -1.44%) was an underper- former on the back of weakness in oil prices while the consumer discretionary sector (XLY: +0.67%) rallied. Most majorly economically sensitive sectors finished little changed on the day and defensive sectors were also mixed (XLU: +0.41%, XLV: -0.24%).
Today, the key catalysts will be regional manufacturing PMI data before the open and the Employment Situation report mid-morning. The other focus will be any geopolitical head-lines, especially around the Middle East. If markets remain focused on today’s economic data, then soft PMIs and a soft jobs report will be stocks-positive as it will increase the chances of a 2026 rate cut.
AAII Investor Sentiment Survey shows 37.5% bulls, which is in line with the long-run average. This survey asks respondents (individual investors) whether their outlook is bullish or bearish, and the percentage of respondents that say they're bullish, bearish or neutral is tracked over time. The historical average for bulls is 37.5%. After rising above 40% in early December, this number receded over the past week and now sits almost perfectly on the long-term average. That reading reflects general optimism, but not the type of aggressive bullishness that would make us nervous that stocks are too stretched.
* The CNN Fear/Greed Indicator currently sits at 50% (on a scale of 0-100). That's perfectly in the "neutral" range. The Fear/Greed Index has become more widely followed on the Street because it incorporates seven different momentum and sentiment indicators. As such, it provides a wide view of current investor and market sentiment. Like the AAII reading, it's almost perfectly "average" as we end this strong year of performance, again a surprising result given we're in the midst of a three-year-plus bull market. Regardless, the reality is that the Fear/Greed index, which can be volatile, is surprisingly balanced as we start the new year.
* Investors Intelligence Advisor Sentiment Survey has a Bulls/Bears spread of 35.8%, slightly in the "elevated chances of a correction" range. The Investors Intelligence Advisor Sentiment Index is similar to the AAII survey, but it polls financial advisors, not individual investors. The key to this index is in the Bulls/Bears spread (the difference between the two). Advisors have been consistently more bullish on this market than regular investors in recent months, and to a point, that's still true in this final reading as advisors are very slightly bullish enough to push the spread into the "elevated chances of a correction" range. However, at 35.8%, it's low enough that the reading isn't something that should give us pause.
Bottom line, sentiment is not as universally bullish as the relentless rally would imply, and while that doesn't mean a pullback in January won't happen (there are numerous potential catalysts starting with next Friday's jobs report), the reality is sentiment is not overwhelmingly bullish like in some years past (2021) when the markets opened with a proverbial "thud."
Economics
The October Home Price Index rose 1.3% y/y vs. (E) 1.1% y/y.
Home prices rose more than expected in October but a 1.3% y/y increase isn't the type of rise that will put upward pressure on broader inflation and, broadly speaking, the slowing of housing inflation remains a substantial downward force on CPI and Core PCE. Because of that, the disinflation in housing prices did help to get three rate cuts across the finish line in 2025.
Looking at 2026, home price disinflation isn't required any further as near-1% annual increases in home prices aren't inflationary, so some stability and leveling off of home price increases would be a mild economic positive as long as price increases don't start to rise too quickly and pinch affordability and inflation (although that's unlikely at this point). Instead, stabilization in home prices combined with an uptick in home sales and transactions would provide a surprise economic tailwind in 2026, if the housing market can keep recent momentum up.
FOMC Minutes
The minutes from the December FOMC decision largely met expectations and didn't impact markets, as they revealed what we already knew: The Fed cut rates, but is deeply divided on whether it will cut rates again in the coming months.
That said, there were some notable insights from the minutes that are worth conveying that, while they don't alter the expectation for no rate cuts in early 2026, do offer insight into the state of the Fed.
First, the Fed was very explicit about wanting to clarify that starting to purchase short-term Treasuries to manage reserve liquidity was not QE. To that point, the minutes revealed that the Fed manager expected the liquidity needs to peak around April (taxes) and, as a precaution, purchases should start soon so they could be bought gradually instead of all at once around April. Importantly, after April, the manager expected the pace of short-term Treasury purchases to drop substantially, as liquidity needs subsided. The takeaway for us is that the short-term Treasury purchases are not QE and shouldn't be viewed as any sort of lasting stimulus (i.e., not bullish).
Second, Most Fed officials admitted that if inflation would drop more sustainably, they would be open to cutting rates further. That's notable as we start 2026 because if we see inflation begin to recede, then that will open the door to more rate cuts even if growth is stable. Point being, a surprise drop in inflation could be an unanticipated positive in early 2026 because it'd increase rate-cut chances.
Finally, most Fed members believed that recent labor data was pointing to a softening in the labor market, and that tilts dovishly because if they are more worried about the labor market than they are about inflation, that increases the chances they could cut rates sooner than later, especially if labor market data continues to gradually deteriorate.
Bottom line, the minutes didn't alter the outlook for no cuts through the first quarter of 2026, but on balance they did imply that if we get a surprise, it should be a dovish one that's driven by either 1) A fall in inflation that increases rate-cut chances or 2) Any further labor market deterioration. If markets do start to price in a Q1 rate cut (possibly March?), that would be a mild positive.
Commodities
Commodities traded with an upside bias as the metals rebounded after Monday's CME-induced rout amid higher margin requirements, while energy futures lagged with oil giving up early gains to end slightly lower as traders continued to assess fluid geopolitical tensions around the globe. The commodity ETF, DBC, gained 0.67%.
Currencies & Bonds
As expected, currency and bond markets were quiet again on the penultimate day of the year, as neither the economic data nor the FOMC minutes altered the outlook for rates, growth or inflation. And just like on Monday, I will not take too much of your morning covering currency markets as they are essentially "on hold" until next week (barring any surprises today or Friday).
The Dollar Index rose 0.2% as it inched higher consistently throughout the day. The housing data was slightly better than expected and that could be cited as a "reason" for the dollar rally; however, in reality, Case-Shiller and FHFA HPI don't move currencies. Instead, year-end positioning was the main driver of the slight drift higher and we know that because volatility in the dollar peaked around 11:00 a.m., the close in Europe. That implied most of the trading was being done via book squaring from global trading desks.
Internationally, there was again no notable economic data nor any central bank speak. The euro, pound and yen all declined 0.2% each in quiet trade, and with many foreign markets closed today and tomorrow, we can expect continued calm trading in currencies until next week.
Turning to Treasuries, the 10-year yield rose 1 basis point as it was not impacted by Case-Shiller nor the FOMC minutes. There was no economic data nor Fed speak to move longer-dated yields, and again, with much of the world closed for at least one of the next few trading days, global bond markets should be quiet. Both the dollar and the 10-year Treasury yield will finish 2025 in "neutral" territory for stocks, and that means they won't fuel a continued rally, but they won't stop one, either.
As we start 2026, keep an eye on 4.50% in the 10-year yield and 105 in the Dollar Index. If the 10-year yield and the Dollar Index move towards those levels, the headwinds on stocks will increase in the form of restrained growth and earnings and breaches of those levels will intensify those headwinds. However, maintaining stability near current levels will keep both the dollar and 10-year Treasury generally neutral for stocks.
Have a happy and safe New Year and we'll see you in 2026!
Jay, LEGION
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