Good morning investors,
The longest government shutdown in history is finally over after 43 days, with Trump signing the funding bill late Wednesday to keep operations running through January. The Dow celebrated by closing above 48,000 for the first time while tech lagged, continuing the healthy rotation into value. Disney missed revenue expectations despite streaming strength, and with October economic data likely lost forever, the Fed flies partially blind into December. But certainty beats uncertainty, and markets can now focus on what matters: earnings and the year-end setup.
Opening Bell: Mixed Signals Continue
Dow ($DIA ( ▲ 1.36% )) futures dip 32 points with S&P ($SPY ( ▲ 0.23% )) and Nasdaq ($QQQ ( ▼ 0.32% )) futures down 0.1% as Disney falls 3% premarket on mixed Q4 results. The media giant beat earnings at $1.11 versus $1.05 expected but missed revenue at $22.46 billion versus $22.75 billion forecast. Streaming gained 3.8 million Disney+ subscribers while linear TV continued its decline.
Wednesday's divergence persisted with the Dow gaining 0.7% to new records while the Nasdaq fell 0.3%. Healthcare, financials, and industrials led as money rotated from stretched tech valuations into overlooked value plays. This broadening participation is exactly what bulls wanted - the rally spreading beyond the Magnificent Seven concentration.
Dow 48K: The Catch-Up Trade Accelerates
The Dow hitting 48,000 for the first time ever took just 13 trading days from 47,000 - lightning speed compared to the 9+ months it took to go from 45,000 to 46,000. This acceleration signals the catch-up trade has plenty of room to run. Industrials, financials, and healthcare look particularly attractive as the rally broadens beyond tech dominance.
Healthcare especially stands out as my conviction sector alongside small caps. The combination of defensive characteristics, reasonable valuations, and innovation in biotech and medical devices creates multiple ways to win. With the Dow's rapid advance validating rotation into value, these overlooked sectors offer the best risk/reward heading into year-end.
Government Reopens, Data Lost
Trump signed the funding bill Wednesday night after the House passed it 222-209, ending the 43-day shutdown. Federal workers return today but the damage is done - White House Press Secretary Karoline Leavitt confirmed October's jobs report and CPI data may never be released, leaving permanent holes in the economic record.
The shutdown could shave up to 2 percentage points from Q4 GDP according to the White House, though most economists expect minimal impact. More concerning is the Fed entering December's meeting without two months of inflation data. Flying blind makes policy errors more likely, though private data from ADP and Challenger provides some visibility.
Disney's Streaming Success, Linear Decline
Disney's ($DIS ( ▲ 2.42% )) Q4 showed the media transformation in real-time. Streaming operating income surged 39% to $352 million as Disney+ added subscribers and raised prices. But linear TV networks' operating income plunged 21% to $391 million with advertising revenue cratering. The ongoing YouTube TV carriage dispute compounds the pressure.
CFO Hugh Johnston highlighted strength in experiences with park bookings up 3% and spending per guest rising 5%. The cruise business is selling out despite fleet expansion. But without theatrical hits and with ESPN's DTC launch costs weighing, the entertainment division fell 6%. Disney following Netflix in stopping subscriber reporting signals streaming's maturation from growth to profit focus.
Fed Hawks Circle
Atlanta Fed President Raphael Bostic, announcing his February retirement, called the December decision an "extremely close call" while favoring inflation focus over employment. Boston Fed's Susan Collins said the bar is "relatively high" for further cuts, comfortable holding "for some time" as risks balance.
The hawkish chorus grows louder with each official questioning December easing. Without October data and November's shutdown-distorted numbers, the Fed lacks clear signals. Markets still price 65% odds of a December cut but conviction weakens. Policy uncertainty adds to November chop.
Cisco's AI Infrastructure Boom
Cisco raised full-year guidance with revenue of $60.2-$61 billion versus $59-$60 billion prior, driven by $3 billion in AI infrastructure orders from hyperscalers in fiscal 2026. CEO Chuck Robbins secured over $2 billion in AI orders in fiscal 2025, nearly all from cloud giants building out capacity.
The networking equipment maker proves AI demand extends beyond chips to entire infrastructure stacks. At these levels, every component supplier benefits from the capex supercycle. Cisco's guidance raise validates continued spending acceleration into 2026.
Skims' $5 Billion Valuation
Kim Kardashian's Skims raised $225 million led by Goldman Sachs at a $5 billion valuation, nearing $1 billion in annual sales just six years after launch. The funding fuels physical retail expansion, marking a reversal from digital-first to "predominantly physical business."
The Nike collaboration selling out in hours shows Skims transcending celebrity brand status to compete with Lululemon and Nike in athleisure. Delaying IPO makes sense given cautious consumer market conditions. Building infrastructure before going public creates a more durable business than typical DTC brands.
Final Thought
The shutdown ending removes a major overhang but isn't alone sufficient to drive markets higher. We need earnings delivery and Fed clarity, neither guaranteed. Disney's mixed results show even quality names face headwinds. The lost economic data creates a permanent blind spot that could haunt policy decisions for months.
But the Dow's sprint from 47,000 to 48,000 in just 13 days versus 9 months from 45,000 to 46,000 shows momentum building in the right places. This isn't exhaustion - it's rotation. Healthcare, financials, and industrials have massive catch-up potential after years of tech dominance. The broadening rally continues exactly as I've been predicting.
Cisco's AI infrastructure boom, AMD's growth projections, and continued hyperscaler capex commitment validate the structural story. Even struggling linear TV can't derail Disney when streaming and experiences deliver. Quality companies adapting to change deserve premium valuations whether in growth or value sectors.
With government certainty restored, focus returns to fundamentals. Nvidia reports November 19, providing the next major catalyst. December Fed odds remain fluid but any cut would surprise positively given hawkish rhetoric. Year-end seasonality and forced index buying from underperforming managers create natural support.
I maintain my view that we rally into year-end after November consolidation. The S&P 500 approaching 7,000 remains achievable. Healthcare stands out as my highest conviction sector, outside of tech, alongside the small cap trade. Use remaining weakness to position across quality names in both growth and value.
Stay patient through the chop. The best gains come to those who endure the volatility.
As always, feel free to reach out with questions about positioning in your portfolio or your long term financial plan.
Best regards,
Dan Sheehan [email protected]
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.