How the Fed stole Christmas

The second half of December is also typically the second-strongest period of the year for US, according to Bank of America. In Presidential election years, the pattern is even stronger, with the S&P 500 up 83% of the time.

That’s not the case so far, with the S&P 500 down 1.7% in December and futures slightly lower today.

The main reason is the Fed decision and Powell’s return to an emphasis on the inflation side of the mandate. Back in August, Powell was saying this:

Now, he’s reverted to more of a focus on inflation as the economy performs better than expected and at the FOMC press conference, he said this, regarding the Fed’s inflation forecasts.

The Fed is also likely worried about the impacts of tariffs and deportations on inflation. Meanwhile, AI continues to steam ahead with many tech-watchers drooling over the new o3 model released by OpenAI on Friday. That should ultimately prove deflationary but the massive investment in chips, data centers and electricity will come first.

On Friday, US stocks rebounded as Congress raced to avoid a government shutdown. I thought that might spill into today’s session but it looks like it was priced in Friday. The big thing to watch going forward is how seriously officials take the deficit because there will be no big corporate tax cut or strong economic growth if they want to reel in a deficit near 7% of GDP.

This article was written by Adam Button at www.forexlive.com.