Equities Mixed Among Flood of Economic Data

Equity sectors were mixed last week as AI scares gave way to a better-than-expected inflation report. While the inflation report was a welcomed diversion from the

Oracle/Blue Owls mess, we would caution that the number is likely to get revised. October data is still missing and November data was collected a little later than usual. The year-over-year CPI number was +2.7%, well below the expected reading of +3.1%. However, even if the number were to be revised higher to +3.0%, the number is still below the historical average of 3.5% and well below the University of Michigan's monthly survey of +4.5% expected. In fact, the survey data and the hard, actual data have been disjointed since COVID. Earlier this year the survey data showed expected inflation of +6.6%, which the hard data has never come close to achieving.

On the positive front, some items we can see in real time do show vast improvement in terms of inflation. Gas prices are near 5-year lows, which has helped the average

consumer at the pump. The average price of dairy products is down 1.6% on a year-over-year basis and fruits and vegetables are nearly flat year-over-year. The jobs report released Tuesday did in fact show the unemployment rate ticked higher from 4.5% to 4.6%. This should not come as a shock, given Powell's warning the prior week. However, we're still not seeing a substantial increase in layoffs or jobless claims. Both initial and continuing claims remain well below the average levels that are evidenced just prior to recessions. At this point, we're stuck in a "low hire, low fire" labor market scenario.

The AI story that has driven equity prices higher in 2024 and 2025 is seeing shifts in sentiment. The announcement last week that Blue Owl - a major private credit

lender on AI data centers - would not help fund one of Oracle's data centers made markets nervous. Despite the AI concerns, credit markets seem to be holding up just fine, with high yield bonds moving higher and the credit spread index remaining low (stable). The historical average for the VIX is 19.5, with the current reading between 15 and 16 for the past month, meaning equity markets are stable, overall. The remaining question for 2025 is whether or not we will get a "Santa Rally." The official period of the Santa Rally begins on December 24th and runs through the last 5 trading days of the year up to January 2nd. The last two Santa Rallies were negative, years in which the S&P 500 Index finished +20% for the year. On average, the Santa Rally has provided +1.2% return with an average positive rate of 77%. Let's hope the big guy comes down the Wall Street chimney this year.

---

Disclosures

The information contained herein is for informational purposes only and is developed from sources believed to be providing accurate information. The opinions expressed are those of the author, are for general information, and should not be considered a solicitation for the purchase or sale of any security. The decision to review or consider the purchase or sell of any security should not be undertaken without consideration of your personal financial information, investment objectives and risk tolerance with your financial professional.

Forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

Any market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. The S&P 500 Composite Index is an unmanaged group of securities that are considered to be representative of the stock market in general.

Past Performance does not guarantee future results.