It's The Most Wonderful Time Of The Year?

Depending upon which investor type you encounter, it's either the most wonderful time of the year or it's the worst. Some investors are nervous about AI, the job market, and

inflation, while others are working against deadlines to take RMDs and make charitable contributions. The inspiration for this week's musings is the 1963 hit song by Andy Williams, "It's The Most Wonderful Time Of The Year." Here’s some trivia about the song:

• This song was written specifically for the Andy Williams Christmas Album by the collaboration of George Wyle (known for the Gilligan's Island theme) and Eddie Pola.

• The song did not do as well as other songs on that album. The studio decided to release Williams' version of "White Christmas" as the first single off that album and was the #1 selling Christmas single that year. However, the album was #1 on the Billboard Christmas album list in 1963 and 1964.

• This song went on to appear on every Christmas album Andy Williams recorded (8 in total) and earned him the nickname "Mr. Christmas."

• This song has been covered by several famous artists over time - Amy Grant, Johnny Mathis, Garth Brooks, & Vince Gill.

• The song is featured in "Home Alone 2: Lost in New York" (1992) as an ironic aside when the McCallisters start their Florida vacation in a downpour while staying in a seedy motel because Kevin has his dad's wallet.

"It's the most wonderful time of the year

With the kids jingle belling

And everyone telling you be of good cheer

It's the most wonderful time of the year

It's the hap-happiest season of all

With those holiday greetings and gay happy meetings

When friends come to call

It's the hap-happiest season of all"

Here's what we've seen so far this week...

Be of Good Cheer. Markets seemed to cheer the inflation report that came out on Thursday, especially as a diversion from the Oracle/Blue Owl mess. While the report

was a welcomed surprise, 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 big question in the November CPI release has to do with shelter and rent costs. Some assumptions by the Bureau of Labor Statistics were made that we will have to compare with next month's revision before we get too excited.

With the Fed meeting last week, we were told by Fed Chairman Powell to expect a slight increase in inflation and unemployment - the two areas of the economy that will likely

influence any future rate cuts. Powell said that he expected inflation and unemployment to rise 10 or 20 basis points each, but then level off. It looks like inflation will end up flat or lower. However, 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. 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. One that isn't likely to derail the economy, but may challenge substantial growth in 2026.

Most Wonderful Time of the Year. The AI story that has driven equity prices higher in 2024 and 2025 is slowly hitting some potential walls. The announcement this week that

Blue Owl - a major private credit lender on AI data centers - would not help fund one of Oracle's data centers that is apparently behind schedule made markets nervous. The big question is how will AI companies monetize the new technology so that cash flow can be sustained and debt can be repaid. Despite the AI concerns, credit markets seem to be holding up just fine. Over the past month, high yield bonds are up +1.3%, which is the opposite of what we would expect in a credit crunch. In addition, the credit spread index is still hovering at a low level and well below the historical average.

Despite the volatility in AI and Mag 7, volatility for the market as a whole has been relatively muted. The historical average for the VIX is 19.5, with the current reading

between 15 and 16 for the past month. When major market events take shape that suggest a significant downward trend, the VIX typically elevates above 30 and remains elevated for some time. So far, other than the temporary move in April, we haven't seen a sustained elevation in the VIX in 3 years.

With more potential news of the struggles with AI, it's likely we'll see a shift toward other names that may benefit from AI efficiencies, but do not have the debt repayment of these huge data centers. On Wednesday, the S&P 500 Index was lower by more than 1%. However, what was not talked about was that new highs in S&P 500 stocks were greater than new lows. That should tell us that there is still solid breadth out there and that we could be seeing a rotation away from Mag 7 or pure AI names and into other sectors that could out-perform in 2026.

Here's one of the old Andy Williams Christmas specials...

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