Dear subscribers,

There’s nothing scientific about January 1st. And yet, year after year, the calendar reset gives us a sense of renewal — a psychological fresh-start reset that encourages us to rebuild habits, revisit goals, and reorient ourselves.

This reset isn’t just personal. It shows up in consumer behavior, corporate planning, and investor psychology.
So December becomes a mélange of year-end emotion layered on top of real economic forces.

Here’s what I’m watching.

1️⃣ Economy: Quiet Surface, Fragile Undercurrents

From a high level, not much has changed since early November.
Trade negotiations with China continue, with loud tariff statements followed by quieter exemptions and revisions — including the recent expansion of tariff exemptions on Brazilian imports of coffee, beef, cocoa, and certain fruits, which had been included in July’s tariff package.

This pattern reinforces what we’ve seen all year from this administration:
public intensity, private recalibration.

Rates:
I still see the pendulum leaning toward a modest 25bp rate cut at the December 9–10 FOMC meeting. Any other outcome , either no cut or a larger one, risks introducing volatility in the final month of the year.

Recent data adds context:

• September’s strong jobs number is increasingly viewed as an outlier
• October layoffs were the highest for that month since 2003, up 75% from a year ago
• The job market appears uneven beneath the surface

All of this is happening while the Bureau of Labor and Statistics remains without a permanent head, and several key federal data series continue to be unavailable — meaning markets are operating with less data and more noise.

2️⃣ Markets: Stretched Valuations and AI as the New Gravity

We end 2025 with:

• Stretched equity valuations
• A market heavily concentrated in fewer than ten megacap names
• AI-related investment driving both narrative and flows

And personally, I believe AI still has a long runway.

In my own work, integrating AI tools has meaningfully boosted productivity. Multiply that across sectors, and the potential becomes enormous.

A new MIT–Oak Ridge National Laboratory study echoes this:

• AI can already replace 11.7% of the U.S. labor force
• Impacting $1.2 trillion in wages
• Visible layoffs today reflect only 2.2% of the true exposure
• Their “Iceberg Index” shows deeper disruption in routine roles across HR, logistics, finance, and administration

At the same time, analysts are raising questions about:

• vendor-financing loops,
• debt-financed AI infrastructure spending, and
• whether revenue growth will justify current investment levels.

3️⃣ Seasonal Market Dynamics: A December Cocktail

December markets are shaped by a blend of behavioral and structural forces:

• Window dressing: institutions buying winners, shedding underperformers
• Tax-loss harvesting: downward pressure on losing positions in early/mid December
• Institutional rebalancing: especially after a year dominated by megacaps
• Low holiday trading volume: amplifying market movements

We may still see a Santa Claus Rally — the last five trading days of December and first two of January — but history reminds us it’s not guaranteed. In several recent years, the S&P 500 finished December meaningfully lower.

Small caps may also show relative strength into year-end, supported by mean reversion, the end of tax-loss selling, lower international exposure, and strong momentum in biotech M&A activity.

4️⃣ What Should a Long-Term Investor Do?

For most, nothing dramatic.
I don’t see signals that justify major changes to a long-term plan.

However, if you:

feel anxious about volatility, or

have a shorter investment horizon,

…it may be wise to revisit your liquidity levels, asset location, and risk allocation before year-end.

5️⃣ What Could Create Volatility?

A few items on my radar:

• Supreme Court ruling on the legality of a large portion of recent tariff actions
  A ruling against the tariffs could widen the U.S. deficit and increase the risk of a debt downgrade
• A potential end to the Russia–Ukraine war, which would reshape commodity, currency, and geopolitical dynamics
• Elevated valuations and fragile consumer sentiment, which could magnify reactions to unexpected news

Final Thought:

Psychology drives more of the market than we admit.
Use the calendar reset for clarity, recommitment, and renewed discipline — notemotional decision-making.

If you’d like to review your allocations or risk posture heading into 2026, let’s connect this month.