Thin Holiday Trade Likely After Late-Week Comeback

0:05Welcome to the Schwab Market Update Podcast, where we prepare you for each trading day with a recap of recent news and a look at what's ahead. I'm Keith Lansford, and here is Schwab's early look at the markets for Monday, December 22nd. Earnings and data grow scarce this week and next, while trading volume could thin. U.S. markets close at 1 p.m. Eastern time on Wednesday for Christmas Eve, before shutting for Thursday's Christmas holiday. This means investors might discount any strong up or down moves, owing to possible lack of conviction. The end of the year sometimes brings volatility due to thin volume and window dressing as fund managers use the final days to close losing positions and buy shares that performed better.

0:55However, volatility ended last week in deep slumber with the SIBO volatility index below 15. Improving sentiment around AI and Bitcoin helped the S &P 500 index avoid a second straight week of losses Friday, following four straight declines through Wednesday. It remains down slightly for December, still on pace for its first losing month since April, but close to break-even for the month. Oracle, which suffered deep losses earlier this month, put a charge into the tech sector Friday as it rose more than 6%. On news, TikTok has an agreement to sell its U.S. business to a joint venture controlled in part by Oracle, Silver Lake and Abu Dhabi-based MGX.

1:38Though stocks struggled much of the last two months, as investors rotated out of tech stocks amid AI spending worries, the S &P 500 index remains on pace for solid double-digit gains this year, the third year in a row of strong performance. This came despite notable policy uncertainty throughout 2025 that sent volatility soaring several times. The economy has proven to be incredibly resilient, said Lizanne Saunders, chief investment strategist at the Schwab Center for Financial Research, or SCIFR. The market has done what it often does, which is climb a wall of worry. A Bank of Japan, or BOJ, rate hike put central bank policy front and center Friday.

2:22Though not unexpected, the decision took rates there to a 30-year high and means Japanese investors might extract money from U.S. investments and put it to work at home as yields grow more attractive. U.S. Treasuries, along with the dollar, could be canaries in the coal mine for such moves. A more hawkish policy by the BOJ over time could mean Japanese investors extract funds from U.S. investments and put their money to work at home. The U.S. 10-year Treasury note yield climbed four basis points Friday to 4.15 percent, partly supported by the BOJ move, though policymakers there didn't signal further hikes in the immediate future.

3:03This followed a drop in yields Thursday following benign U.S. Consumer Price Index, or CPI, data. Analysts have doubts about CPI's accuracy due to the government shutdown. Like the labor market, we'll need to see a few more months of data now the government is open to better gauge the state of the economy, said Colin Martin, the head of fixed income research and strategy at Skiffer. The near-term timing of cuts hasn't changed. The likelihood of a cut in January is still low, but the Fed Fund's futures market has priced in a higher probability of a cut this spring. If yesterday's inflation trend is confirmed, then an earlier rate cut would be justified.

3:42Martin noted that the two-year Treasury yield late last week was at the bottom of the 3.4 % to 3.6 % range it's held since early September, while the 10-year yield was near the high end of the 4 % to 4.2 % range it's held. Those yields should be driven more by the expected terminal rate rather than short-term shifts in the actual timing of rate cuts, Martin said. We continue to expect the 10-year yield to hover near 4%, unless economic growth is expected to slow considerably. The terminal Fed funds rate, which represents where rates are expected to ultimately settle to not hurt growth or spark inflation, is expected to be around 3 percent, according to the Fed's recent quarterly projections.

4:25New York Fed President John Williams said Friday he sees no urgency for further rate cuts, Bloomberg reported. Chances of a Fed rate cut in January ended the old week near 22 percent, down from 27 percent a couple days earlier, according to the CME FedWatch tool. A better chance might come in March when futures trading indicates better than 50 percent odds of rates being lower than today. Tomorrow provides a look back at the government's third quarter gross domestic product, or GDP, among the last key data points of the year. That report, due at 8.30 a.m. Eastern time, is expected to show seasonally adjusted annual growth of 3%, according to Briefing.com consensus, down from 3.8 % in the government's last estimate.

5:10Still, this is backward-looking data, and investors may be more focused on what the economy does this quarter during holiday shopping season. That data likely won't be available until late next month. In Data Friday, final December University of Michigan consumer sentiment declined to 52.9, down sharply from 74.0 a year ago. The consensus had been 53.3, unchanged from the preliminary. Long-run inflation expectations, closely watched by the Fed, stayed at 3.2 percent, down from November's 3.4 percent. Labor market expectations lifted a bit this month, though 63 percent of consumers still expect unemployment to continue rising during the next year.

5:56U.S. existing home sales for November slightly topped consensus at a seasonally adjusted annual$4.13 million, and prices continued to climb. Sales fell 1 % year-over-year, but rose 0.5 % from October. Earnings go into hibernation the next two weeks. Big banks formally kick off fourth-quarter earnings season in mid-January, and there's a lot of positive analyst sentiment around financial stocks due to the favorable yield curve, fiscal policy changes starting in 2026, and possible strength in the initial public offering or IPO and merger environments. In Sector Action Friday, Infotech rallied for the second day, followed by industrials, healthcare, and financials.

6:42Materials also finished with solid gains. The sector mix near the top suggests a continued broadening out beyond the mega caps and into sectors that might benefit from the continued AI build-out, expected to be a big economic tailwind again next year. Defensive utilities and staples finished with losses. Eight of 11 S &P 500 sectors climbed Friday, the second day of broad gains in a row. Only five of 11 sectors rose over the full week, however. Checking individual Friday performances, FedEx moved up about 1 % as earnings topped Wall Street's consensus and the company raised the low end of its fiscal 2026 revenue growth outlook.

7:26There were also signs of progress in the company's cost-cutting initiative. Nike skid at 11 % Friday, hurt by a 17 % revenue dip in its important Greater China market. That was the sixth consecutive quarter of weaker Nike sales there. Analysts said demand remains uncertain and guidance looks conservative as Nike forecasts declining third-quarter sales. Lamb Weston fell nearly 26 % Friday despite quarterly results exceeding analysts' earnings and revenue estimates. It also guided above consensus for fiscal 2026. Concerns about margin possibly dragged shares. UnitedHealthcare, Humana and other health insurers lost ground late Friday after the White House announced an initiative with pharmaceutical companies to reduce drug prices and said he would set up a meeting with health insurers to discuss how to get costs down NVIDIA jumped 3.8 % after Reuters reported that the U.S.

8:26is reviewing sales of advanced NVIDIA AI chips to China Technically, the NASDAQ 100 and S &P 500 index enter the week looking a bit stronger on the charts after both briefly fell below their 50-day moving averages last week and clawed back to finish above them by Friday. The S &P 500's 50-day moving average of 6 ,767 might be a level to watch this week on any pullbacks. The Dow Jones Industrial Average added 183.04 points Friday, or 0.38%, to 48 ,134.89. The S &P 500 Index climbed 59.74 points, or 0.88%, to 6 ,834.50. And the Nasdaq Composite rose 301.26 points, or 1.31%, to 23 ,307.62. For the week, the Dow Jones Industrial Average slipped 0.67%, the S &P 500 inched up 0.10%, the Nasdaq rose 0.48%, and the Russell 2000 Index of Small Caps lost 0.86%.

9:39This has been the Schwab Market Update Podcast. To stay informed, visit www.schwab.com slash marketupdate or follow us for free in your favorite podcasting app. And if you like what you've heard, please consider leaving us a rating or a review. It really helps new listeners find the show. Join us for another update tomorrow.

10:08For important disclosures, see the show notes and schwab.com slash market update podcast.