My Responses to the Fed, 4 Key Items for '26, Reflections of an Aging Trader
Let's dissect what the Fed said, check four items to watch in the new year, and remember how we used to trade and what's truly important in life.
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Landslide
I took my love; I took it down
Climbed a mountain and I turned around
And I saw my reflection in the snow-covered hills
'Til the landslide brought me down
Oh, mirror in the sky, what is love?
Can the child within my heart rise above?
Can I sail through the changin' ocean tides?
Can I handle the seasons of my life?
- Stephanie Nicks (Fleetwood Mac), 1975
Happy New Year
One door closes. Another opens. Time keeps rolling and only seems to accelerate. My father (I'm in my 60's) told me it felt like he was in high school just a few weeks ago. I think I'm starting to understand how he feels. I feel like I was that "up and coming" youngster myself, not that long ago. Hoping I was good enough to win the title of U.S. Marine. Hoping I was good enough to make it on the trading floor of the New York Stock Exchange.
Am I a good man? I don't know. Maybe if compared to some of my peers. Maybe not, if the standard is Augustine of Hippo. Was I, or am I, a good father? That's the most important question of all. I think that I've done my best there. That said, did all of the 80-, 90- and 100-hour-plus weeks spent over a lifetime in the pursuit of professional excellence in order to "provide" leave something important undone or unsaid? I know my sons appreciated the effort. I have a good relationship with both of them. Still, a father always wonders.
... And so, the irresistible force that is the passage of time pushes on. I was indeed good enough to stand upon those yellow footsteps oh so long ago. I was indeed good enough to work on the trading floor of the New York Stock Exchange and ultimately move on to and master other corners of a life spent in the financial marketplace. It does pain me somewhat though to know that I am among the last of my kind. How many human floor traders, who made a living in the old open outcry market model, are still relevant in our little universe? I can only think of a few others. Hi Kenny. Hi Jonathan. Miss you, Arthur. Miss you, Chief. One day, there will be none. A day or two later, we will be forgotten.
Tuesday's Child
Markets remained incredibly quiet on Tuesday. The major indexes suffered a third consecutive red candle session that barely sets us back a week. Santa Claus Rally? Maybe. Maybe not. The S&P 500 is still up 2.6% over the past two weeks and up 5.8% from its November low. Never mind the fact that the S&P 500 is up 17.25% for 2025 with one session to go, as the Nasdaq Composite has gained 21.27%.
I think we'll live either with or without an appearance by the red-clad jolly one by Monday. Earnings season is just two weeks away and I literally cannot wait for the trading volume to return to something remotely close to normal. Aggregate trading volume across the membership of the S&P 500 has only reached its 50-day trading volume simple moving average twice since before Thanksgiving, and one of those two days was a "triple witching" expirations event.
For the Session...
The S&P 500 gave up just 0.14% on Tuesday as the Nasdaq Composite surrendered a whopping 0.24%. The small caps had the toughest day on Tuesday of all of the mid-major to major equity indexes we follow. The Russell 2000 gave back 0.76%, while the S&P 600 lost 0.72%. The top performing index on my screen on Tuesday was the Philly Semiconductor Index at -0.13%. Intel (INTC) led that group to the upside at +1.7% while KLA Corp (KLAC) , at -1.3%, led the group's losers in the other direction.
Four of the 11 S&P sector SPDR ETFs closed out Tuesday's regular session in the green, led by Energy (XLE) . The Discretionaries (XLY) placed in 11th place. That said, none of these funds even came close to gaining a full percentage point on the day and none even came close to losing half of 1%.
As far as breadth is concerned, losers beat winners by a rough five-to-thee margin at the Nasdaq, but by a smidgen at the NYSE. Advancing volume, however, took a majority share of composite trade for listings at both exchanges, which kind of diminishes any negative takeaway from the overall direction of the indexes. As mentioned above, trading volumes were remarkably light.
The Fed Minutes
The Federal Reserve on Tuesday released the minutes of the policy meeting that culminated on Dec. 10th. Despite what the sensationalist media might have tried to tell you, there were no surprises, and markets barely reacted at all. Some key quotes from the minutes were:
Most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected.
Sarge says... "OK, I guess that's common sense."
With respect to the extent and timing of additional adjustments to the target range for the federal funds rate, some participants suggested that, under their economic outlooks, it would likely be appropriate to keep the target range unchanged for some time after a lowering of the range at this meeting.
Sarge says: "I understand the caution, but it has become somewhat clear that the U.S. economy has entered into a disinflationary (not deflationary) period. Supporting demand for labor has to be prioritized at this point. To not understand that at this time is to display a disturbing lack of cognitive ability across those participants referred to here. We don't care where the puck has been. We care only to see where the puck is going. The consumer price index has not printed above a 3% annual pace since June of 2024 and is setting up to settle -- in my opinion, based on models that I trust -- in between 2.2% and 2.4% for most of 2026."
A few of those who supported lowering the policy rate at this meeting indicated that the decision was finely balanced or that they could have supported keeping the target range unhanged.
Sarge says: "Awesome. We have a few voting members at the FOMC who basically have no opinion of their own and wait to be led by someone else. Super cool. I'd rather you disagree with me and have a reason."
Keys to 2026
1) Market performance may broaden. In fact, I would prefer this. That said, for optimal performance, this broadening must not be a full rotation. Market performance at the expense of big tech or the AI-trade, in my opinion, would not be sustainable.
2) Economic growth must remain steadily positive and continue to improve. There's been a dramatic improvement in overall economic activity in 2025. The year 2026 promised lower taxes, increased deregulation and potentially a sharp improvement in per worker productivity. The trick will be to realize these improvements without putting downward pressure on wage growth or demand for labor. AI will make that difficult.
3) Short-term interest rates must come down. I think it quite obvious that the Fed Funds Rate remains 50-to-75-basis points above what would likely be the "neutral rate" that would neither be accommodative nor restrictive. A fear here would be that the long end of the Treasury yield curve, due to any increased potential for a fiscal crisis, might get away from its recent ranges and get beyond the ability of the central bank to impact longer-term rates without making outright purchases of those securities.
4) Clarity on Trade. The Supreme Court will decide in early 2026 just how legal Pres. Donald Trump's use of tariffs as a negotiatory tool has been. Should the tariffs, which have pulled the U.S. back from the edge of what could have been a fiscal catastrophe, be found illegal ... then said crisis could occur sooner rather than later. Figuring out how to refund that money would ultimately hurt each and every U.S. taxpayer.
Economics
(All Times Eastern)
07:00 - MBA 30 Year Mortgage Rate (Weekly): Last 6.31%.
07:00 - MBA Mortgage Applications (Weekly): Last -5.0% w/w.
08:30 - Initial Jobless Claims (Weekly): Expecting 218K, Last 214K.
08:30 - Continuing Claims (Weekly): Last 1.923M.
10:30 - Oil Inventories (Weekly, Dec 26): Last +405K.
10:30 - Gasoline Stocks (Weekly, Dec 26): Last +2.862M
12:00 - Natural Gas Inventories (Weekly, Dec 26): Last -166B cf.
The Fed
(All Times Eastern)
No public appearances scheduled.
Today's Earnings Highlights (Consensus EPS Expectations)
No significant quarterly earnings scheduled.
At the time of publication, Guilfoyle was long INTC equity.
