Good morning investors,
The S&P sits on the brink of 6,900 as we enter the Fed's final meeting of 2025 with 88% odds favoring a cut Wednesday. Netflix-Warner Bros deal faces Trump scrutiny while IBM nears an $11 billion Confluent acquisition, reshaping tech and entertainment landscapes simultaneously.
Carvana's stunning 8,000% recovery from near-bankruptcy to S&P 500 inclusion epitomizes this market's preference for turnarounds over fundamentals. With 78% of fund managers trailing benchmarks in their worst performance year on record, December's chase dynamics could propel us toward my 7,000 extended target.
Opening Bell: Quiet Before the Storm
Dow ($DIA ( ▲ 1.36% )) futures up 25 points with S&P ($SPY ( ▲ 0.23% )) and Nasdaq ($QQQ ( ▼ 0.32% )) futures gaining 0.1% and 0.2% respectively. Carvana ($CVNA ( ▲ 1.08% )) surges on S&P 500 inclusion effective December 22, with Bank of America raising target to $455 from $385. NextEra Energy ($NEE ( ▼ 0.07% )) rises 2.3% premarket on expanded Google Cloud partnership for gigawatts of data center capacity.
China's trade surplus exceeding $1 trillion for the first time despite 29% drop in U.S. shipments shows global rebalancing accelerating. The year long trade truce reached in October provides stability, though Europe's growing concerns about "unbearable" imbalances suggest new tensions emerging.
Fed Week: The Last Dance
Wednesday's FOMC decision arrives with near-certainty of a 25 basis point cut to 3.50-3.75%. But the real drama lies in Powell's 2:30 PM press conference and the dot plot revealing 2026 expectations. This marks the last meeting with current voting members as Cleveland, Minneapolis, Dallas, and Philadelphia rotate in.
The bond market's stress tells a different story with 10-year yields rising over 10 basis points last week despite cut certainty. Markets fear a dovish Fed might actually spook investors by signaling economic weakness. Bank of America's Michael Hartnett warns rate cuts could send yields higher and stocks lower if not carefully messaged.
Trump's Entertainment Intervention
President Trump declaring he'll be "involved" in the Netflix-Warner Bros decision adds regulatory uncertainty to the $72 billion mega-deal. His comment that combined market share "could be a problem" suggests potential intervention despite generally pro-business stance. The entertainment consolidation wave faces its first real political test.
IBM's reported $11 billion Confluent acquisition shows tech M&A proceeding unimpeded. The contrast between entertainment scrutiny and tech freedom reflects selective enforcement priorities that markets must now price.
Performance Chase Dynamics
With 78% of fund managers trailing their benchmarks, the worst year on record, December sets up for aggressive performance chasing. Missing the 10 best days in 2025 meant being down 12% versus up 20% for those fully invested. This dynamic creates powerful year end momentum as managers scramble to salvage bonuses.
Historical patterns support aggressive positioning. When November finishes flat or down, December delivers median 3.5% gains across all instances since 1950. Combined with oversold RSI levels matching April's bottom, technical and seasonal factors align bullishly.
Carvana's Resurrection Story
From near-bankruptcy in 2022 to S&P 500 inclusion represents one of market history's greatest comebacks. The stock's 8,000% surge and $87 billion valuation exceeding Ford and GM combined shows markets rewarding operational turnarounds over legacy advantages.
The inclusion forces massive index buying December 22, potentially adding 10-15% as passive flows overwhelm float. This epitomizes current market dynamics where momentum and indexation trump traditional valuation metrics.
This Week's Critical Calendar
Tuesday's delayed October JOLTS data provides first official labor market reading in months. Wednesday brings the Fed decision, dot plot, and Powell presser alongside Oracle and Adobe earnings. Thursday features Broadcom and Costco results that could move markets significantly.
Oracle particularly matters given its 30% November plunge on leverage concerns. Any AI monetization proof could spark violent short covering. Broadcom's custom chip momentum makes it the Nvidia proxy to watch.
China's Trade Transformation
The $1 trillion surplus milestone despite U.S. decoupling proves China's successful pivot to emerging markets. Exports to Southeast Asia, Latin America, and Africa more than compensate for American losses. This validates deglobalization creating multiple trading blocs rather than isolated economies.
Europe's growing discomfort with Chinese surpluses suggests the next trade battlefield. President Macron calling imbalances "unbearable" previews 2026's geopolitical tensions as economic blocs solidify.
Final Thought
The market stands at a pivotal juncture with the S&P approaching 6,900 and year end dynamics intensifying. We're witnessing the perfect setup for a melt-up: fund managers desperately trailing, seasonality overwhelmingly positive, Fed easing despite solid economy, and sentiment still skeptical enough to fuel gains.
My 7,000 year end stretch target looks increasingly achievable as performance chase dynamics accelerate. The combination of 78% of managers underperforming, December's historical 3.5% median gain after flat Novembers, and oversold technicals creates explosive potential.
This week's Fed meeting matters less for the decision, that's priced, than for 2026 guidance. Markets want goldilocks: cuts without weakness, growth without inflation. Powell must thread this needle carefully or risk the very volatility cuts aim to prevent.
I am watching for the tone Powell strikes. I'm expecting a hawkish cut, like the previous meeting, which will throw doubt on cuts for 2026. I'm also watching for an mentions of easing. If the tone struck is too hawkish, I could see a temporary pullback on a sell the news event, as every knows the cut is coming, but then I would expect a year end recovery after.
Use any Fed-induced weakness as opportunity. Financial sector leadership, small-cap breakouts, and oversold tech rebounds offer the best risk/reward into year end.
As always, feel free to reach out with questions about positioning for December's final sprint.
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.