Market Update: Same Story, New Twists as Year-End Approaches

With all the turmoil, markets still have the same focus they’ve had all year. A bounce-back by the big AI ten has kept markets near highs as the year draws to an end. The odds on a rate reduction in December are near 90%, even with the mixed economic data.

The big economic concern remains the labor markets. Layoffs are increasing, and we saw a surprise drop in private employment this week. The unemployment rate is rising, and leading economic indicators continue to show signs of a slowdown. Consumer confidence also continues to show increasing weakness — something we’ve been tracking in recent updates such as our post on uncertainty in the economy.

But then again, Black Friday spending increased year over year. And as has been true throughout the past year, unemployment is increasing but still historically low. We have not had a recession, and most indicators show GDP growth is still positive. The top 10% of income earners are still spending and investing — consistent with what we discussed in Overvalued and Undervalued?.

As far as market performance, international stocks continue to outperform domestic stocks, and interest rates remain attractive for investors. On the other hand, costs continue to rise — especially at the grocery store, in insurance, home prices, car prices, and utilities. So you figure it out. When will we have a market correction? Timing markets continues to be an exercise in futility, a theme we’ve reinforced in recent market commentary.

Just to show you how crazy markets are: the Russell 2000 small-stock index hit its fifth high this year because investors think that with declining interest rates, small stocks will outperform large companies. However, earnings are genuinely improving in the small-cap market as well.

To add to the confusion, the last two weeks saw bitcoin and other cryptocurrencies swoon by almost 20%.

I know. The correction will happen when the Epstein files are finally released!!!!!

We did have a brief pullback in November when investors became fearful of an AI bubble — something we touched on in our notes on AI-driven volatility. But so far, it seems like December is beginning with a holiday rally.

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