Markets Unsure of Christmas Rally

As we approach the final full week of the trading calendar, investors cannot make up their mind where to tread next. Will markets move upwards in a traditional end of year rally or ease back from all-time highs as doubts remain about the payback on the vast sums of money invested in artificial intelligence (AI)?

Last week was characterized by sector rotation with the darlings of AI coming under real pressure. Chipmaker, Broadcom retreated on excellent results but priced at over seventy times earnings, investors expected even more. Likewise, the largest company in the world, Nvidia saw significant profit taking.

Finally, Oracle which is planning on capital expenditure this year being five times the average level of the last few years, saw their shares fall a double-digit percentage as rumours of a one-year delay in data centre projects surfaced. A lot of the broader AI investment is funded via debt issues which is clearly worrying investors.

Another piece of news that kept markets in Asia looking tired was that China had weaker than expected retail sales and industrial production in November. Technology names in China and South Korea were all dragged backwards by this combination.

European defence shares (a favourite for the last few years) were under pressure as Ukraine, in a bid to secure a ceasefire with Russia, has signalled a willingness to accept a demilitarised zone in the Donbas region. This marks a major concession and has a dampening impact on oil prices where next year a surplus is expected.

The result of the two-day meeting of the Federal Reserve was all but discounted by investors. It is clearly good news that a quarter point cut took place in interest rates. Of more concern will be the name of the new appointee to the Fed Chair. This is likely to be known early in the New Year, although their duties do not start until May 2026.

Further rate cuts are forecast in 2026, but they will be heavily reliant on inflation, jobs, and the risk of an activity slowdown in the economy. Uncertainty prevails at present, but data coming this week may make things a little clearer.

In company news, major bank HSBC are showing strong share price action as they receive endorsement for its $13.6Bn proposal to take Hang Seng Bank private. Eventually, the full ownership of the Hong Kong based Bank should produce decent long-term rewards.

Our faith in Silver has yet again come to the fore. Its price broke out to a new price range, and one ounce of silver is now equivalent to the cost of a barrel of oil – the first time since 1980! Year to date the metal is comfortably up over 100%.

This week we see delayed releases tied to the US government shutdown, as they head for one of the busiest data weeks of the year.

As we go to print the US October/November employment reports are released – this is a key data point the Federal Reserve has flagged as central to future interest rate decisions. Is the job market stabilising or is it still weakening?

At the same time, October Retail Sales, a closely watched gauge of consumer spending is due. This along with Business inventories from September will add another layer of understanding to demand trends across the economy.

Tomorrow (Thursday), focus will turn to the November Consumer Price Index (inflation). The report should convey key messages about how trade tariffs and supply-chain pressures are feeding into prices.

Finally, all of us at Team wish a happy Christmas and a prosperous New Year to all our readers of this weekly column.

(Cover Image Source: Rodion Kutsaiev)