Good morning investors,
December arrives with futures down modestly as Bitcoin drops 5% below $87,000, triggering broader risk-off sentiment. Don't let this morning's weakness obscure the bigger picture, as the S&P 500 sits just 1% from record highs after November's choppy consolidation delivered the reset we needed. Intel surges on reports of a 2027 Apple chip deal while the Fed enters its blackout period with December cut odds at 87%. The stage is set for the traditional Santa rally.
Opening Bell: Crypto Weakness Spreads
Dow ($DIA ( ▲ 1.36% )) futures fall 181 points with S&P ($SPY ( ▲ 0.23% )) futures down 0.6% and Nasdaq ($QQQ ( ▼ 0.32% )) futures off 0.7%. Nvidia ($NVDA ( ▼ 1.55% )) drops 1% premarket alongside AMD ($AMD ( ▲ 0.01% )), while Oracle ($ORCL ( ▼ 10.83% )) slides nearly 1% as November's tech laggards continue struggling. Bitcoin's ($BTC.X ( ▲ 0.08% )) 5% plunge below $87,000 represents forced deleveraging rather than structural weakness, precisely the shakeout needed before my $100K year-end target.
Intel ($INTC ( ▼ 3.11% )) holds Friday's 10% surge after analyst Ming-Chi Kuo reported the chipmaker nears a deal to supply Apple's lowest end M processors by 2027. Someone clearly knew Friday as the unusual options activity preceded the news perfectly. This validates domestic semiconductor manufacturing while barely denting TSMC's dominance.
November's Deceptive Strength
The monthly scoreboard looks uninspiring, S&P and Dow barely up, Nasdaq down 1.5%, but this masks powerful rotation beneath. At one point the Nasdaq fell 8% from October highs before surging 4.9% last week alone. The S&P's 4.75% Thanksgiving week rally erased earlier losses to finish up 0.39%.
Tech's 4.72% monthly decline drove headlines, but market breadth improved dramatically in consumer discretionary, industrials, and financials. This broadening participation validates my thesis that we're seeing healthy rotation, not concerning weakness. Small caps continuing to outperform confirms leadership expanding beyond mega tech.
December's Historical Edge
Seasonality strongly favors bulls as December averages 1%+ gains, making it the third-best month since 1950. More compelling: when stocks gain six straight months through October (as happened this year), November and December rally five of six times historically with median 5% gains.
Retail sentiment remains net bearish at -10.7% per AAII - exactly the skepticism needed for rallies to climb walls of worry. Momentum favors continuation while pessimism provides fuel. This setup rarely aligns better for year-end strength.
Fed Blackout Begins
The Fed entered mandatory quiet period Saturday ahead of December 9-10's meeting. With 87% odds of a quarter-point cut, markets effectively priced the outcome. Kevin Hassett emerging as Powell's likely successor adds another dovish catalyst - he'd bring Trump's rate-cutting philosophy to monetary policy.
Friday's PCE data becomes crucial as the final inflation reading before the meeting. Core PCE expected at 0.2% monthly and 2.8% annually would validate easing. Any downside surprise could push cut probability to certainty, catalyzing the rally's next leg.
Google's Dominance Validated
Alphabet up 20% monthly while peers struggled shows quality discrimination emerging. Strong earnings, Gemini 3's impressive launch, and Meta's potential multibillion-dollar TPU deal confirm Google's AI leadership beyond search. The stock acts like it wants $200+ as institutional money rotates into proven winners.
Meta down 13% and Oracle plunging 30% monthly represent opportunity or warning depending on execution. Meta's capex concerns seem overdone at current valuations and I noted was attractive below the $600 level, which we have since rallied from. Oracle's leverage problems validate avoiding overleveraged AI plays or take on a significant amount of risk. Choose carefully.
Retail Earnings Test Consumer
Dollar Tree, Dollar General, and Five Below report this week, providing critical holiday shopping intelligence. These bargain retailers benefit from K-shaped dynamics as budget-conscious consumers trade down. Strong results would confirm resilient spending despite economic stress.
Salesforce and CrowdStrike headline tech earnings. Both need to demonstrate AI monetization beyond promises. The market's patience for "investing in future growth" without present returns grows thin. Execution separates next year's winners from this year's casualties.
Bitcoin's Leverage Flush
This morning's 5% crypto plunge feels like capitulation as overleveraged longs get liquidated. But this mechanical selling creates opportunity for unlevered capital. My $100K Bitcoin year end target remains intact as these violent shakeouts typically mark local bottoms rather than trend changes.
The pattern mirrors late November's equity flush, maximum pessimism preceding powerful reversals. Once forced selling exhausts, natural buyers emerge. Crypto's correlation with risk assets means Bitcoin stabilization could signal broader market bottoming.
Final Thought
December begins with predictable weakness as November's laggards continue struggling and Bitcoin's leverage unwind spreads risk-off sentiment. But zoom out, and the S&P sits 1% from records after November delivered needed consolidation. The Nasdaq rallied five straight days into month end. Small caps outperform. Breadth improves. The internals scream strength, not weakness.
Use this morning's weakness to position for December strength. The Fed blackout removes uncertainty. Seasonality turns overwhelmingly positive. Sentiment remains skeptical enough to fuel further gains. Ta -loss selling pressure eases. Institutional positioning for year-end begins.
The pieces align perfectly for a memorable December rally. November's chop was the pause that refreshes, not the start of something sinister. Santa Claus rallies aren't guaranteed, but the setup rarely looks better.
As always, feel free to reach out with questions about positioning for year-end strength.
Best regards,
Dan Sheehan
This newsletter is for informational purposes only and should not be considered as investment advice. Please consult with your financial advisor about your specific situation.