Santa Is On His Way. Will He Deliver On Time?

Analyzing the markets with Richie Naso, a Wall Street veteran of over 40 years and former member of the NYSE.

• DJIA 52-wk: +10.56% | YTD: +13.90% | Wkly: +1.05%
• S&P 500 52-wk: +12.83% | YTD: +16.08% | Wkly: -0.63%
• NASDAQ 52-wk: +16.40% | YTD: +20.12% | Wkly: -1.62%
• Roundhill Mag Seven ETF 52-wk: +16.83% | YTD: +21.55% | Wkly: -2.17%

US stocks turned sharply lower on Friday, with the Nasdaq leading the way lower amid a broader rotation from tech to value names.

The Nasdaq Composite (^IXIC) fell 1.6%, continuing a tech slump. The S&P 500 (^GSPC) dropped roughly 1%, one day after surging above the 6,900 level for the first time. The Dow Jones Industrial Average (^DJI), which includes fewer tech stocks, slipped 0.5%.

Friday's moves cemented a brutal week for tech stocks in particular, with the Nasdaq down 1.6% and the S&P 500 down 1%. The Dow bucked the weekly trend, rising 1% for the week

Treasury yields rose, with the 10-year yield (^TNX) stepping higher to top 4.18% and the 30-year yield (^TYX) rising above 4.85%.

Investors are switching out of tech as fears about AI over-valuations get a reboot, as Broadcom (AVGO) followed Oracle (ORCL) in delivering earnings that left Wall Street wanting more. The chipmaker failed to deliver clarity on an AI payoff, stirring concerns about tighter profit margins instead. Its shares dropped over 10% Friday, despite its quarterly earnings beat. At the same time, cyclical stocks — those more sensitive to the economy — got a bid following the Federal Reserve's third interest rate cut of the year. The expected easing comes amid rising optimism for US growth, helping drive broader bullishness for stocks. The rate cut also helped drive gold prices (GC=F) to touch a fresh record as the precious metal is set for its best year since 1979.

Late Friday, President Trump indicated he considers Kevin Hassett the frontrunner for the next Fed chair after Jerome Powell's term expires in May. Trump said Kevin Warsh is also in contention for the role, which has been closely watched for its influence on monetary policy next year.

On the corporate front, Lululemon (LULU) shares surged more than 9% after the athletic wear maker said CEO Calvin McDonald will exit at the end of January following a stretch of disappointing sales.

Broadcom results highlight fears over profitability of AI hardware sellers:

Google's (GOOG) chip supplier Broadcom (AVGO) posted quarterly results after the bell that broadly beat Wall Street's expectations as orders from leading AI developer Anthropic (ANTH.PVT) surged to $21 billion. But profitability concerns are driving the stock down, analysts said Friday.

Historically, most semiconductor makers operated like commodity businesses, as products were relatively undifferentiated, competition was intense, and profit margins were thin.

The emergence of AI chips changed that dynamic. A small number of companies — particularly Nvidia (NVDA) — control the market with highly specialized chips that are in exceptionally high demand and short supply, allowing them to command premium prices and earn unusually high margins.

But as more competitors enter the AI chip market and supply increases, some analysts worry that the economics could eventually start to resemble traditional semiconductor markets again, where chips behave more like commodities, companies' pricing power weakens, and their profits decline.

"While all of these AI revenue figures are surging higher, the cost of this growth comes on margins..." wrote Deutsche Bank analyst Ross Seymore of Broadcom's results in a note to clients Friday.

Broadcom guided for a gross margin of 76.9% for the current (January) quarter, which would mark a decline from 79% in the year-ago period. It would also be a step down from 77.9% in the fourth quarter and 78.3% in the third quarter — although these figures still represent extremely high profitability.

Bitcoin slumps with rest of market as investors go risk-off:

Bitcoin (BTC-USD) prices slumped on Friday to around $90,000 per token as investors sold off tech stocks to go risk-off.

The world's largest cryptocurrency has been unable to break above $94,000 in recent weeks, following a major sell-off in October that carried over into November.

Some strategists believe bitcoin may end the year below $100,000 as the cost basis for buyers who bought less than six months ago is around $103,000.

The Federal Reserve cut rates this week, a positive development for risk assets. But Fed Chair Jerome Powell indicated a pause may come in January.

UBS: 'We have an attractive view on US equities':

UBS strategists are optimistic about the stock market heading into 2026.

“We have an Attractive view on US equities. We believe the backdrop for US stocks remains favorable, driven by resilient economic growth, Fed rate cuts, and a boom in AI investment spending," said David Lefkowitz, Head of US Equities, UBS Global Wealth Management.

UBS has an S&P 500 price target of 7,300 for June 2026 and 7,700 for June 2027.

On Friday, stocks retreated from all-time highs as the AI trade came under pressure.

The Story Isn’t the Rate Cut, It’s What Comes Next:

The Federal Reserve delivered another 25-basis point rate cut at its December meeting, bringing the federal-funds range down to 3.50% to 3.75%. I would argue that the markets had priced in the outcome for weeks, and most investors already viewed it as a continuation of the Fed’s gradual effort to transition from “restrictive” toward something closer to neutral.1

The data heading into the meeting gave the Fed enough cover to ease, in my view. The latest inflation update, the September PCE report2, showed core prices rising 0.2% month-over-month and 2.8% year-over-year. Those aren’t perfect numbers, but they’re stable, and importantly, not accelerating meaningfully despite tariff pressure.

The labor market, meanwhile, has been showing signs of moderating but not collapsing. The most recent JOLTS report3 from the Bureau of Labor Statistics showed job openings easing to roughly 8.8 million, with quits rates drifting down—signs that both workers and employers are hanging tight. Employers are not on hiring or firing sprees, and workers are not switching jobs at a high rate. In short, there’s balance in the labor market, but it may be softer than what the Fed wants to see.

Bottom Line for Investors

Investors often look to Fed decisions for clarity, but the more important takeaway from this meeting is what hasn’t changed, in my view. The expansion remains intact, even if it is slower and more uneven beneath the surface. A small rate cut is not going to change the economic narrative, but it may add a tailwind at a time when credit creation and corporate fundamentals still provide a reasonable foundation for continued growth. The Fed’s shift toward a “cut-and-cap” posture simply returns the focus to data rather than expectations, which is exactly where long-term investors should keep their focus as well.

Markets don’t turn on quarter-point moves. They turn on shifts in growth, credit, and fundamentals.

The Case for a Housing Stock Comeback in 2026

Home was not where the heart was for investors this year. That could change in 2026.

Housing stocks have stagnated due to concerns about high mortgage rates, tariffs lifting construction costs, and out-of-reach home prices. As a result, two top housing-related exchange-traded funds have missed out on this year’s market rally. The iShares U.S. Home Construction exchange-traded fund is down about 0.6% this year, while the State Street SPDR S&P Homebuilders ETF is up just 4.3%.

But investors—and some industry executives—are growing more hopeful about 2026. Builder stocks rallied after the Federal Reserve lowered interest rates on Dec. 10, its third rate cut since September. Mortgage rates, which have already fallen from a peak of about 7% for a 30-year fixed home loan in January down to 6.2% by mid-December, could head even lower. Economists at real estate information firm Redfin added in a recent report that 2026 should be the start of what it calls the Great Housing Reset, “a years-long period of gradual increases in home sales and normalization of prices.”

Two prominent builders, Lennar LEN +0.18% and KB Home KBH +0.74%, will report their latest earnings this coming week. Investors are hoping the companies are a little more upbeat about next year, especially after recent results from builders Hovnanian Enterprises HOV +0.83% and Toll Brothers TOL -0.48% put pressure on the sector earlier this month. Still, even though the current results were far from phenomenal, the tone of their CEOs was cautiously optimistic.

Hovnanian CEO Ara Hovnanian said that “buyers are definitely out there looking” but they are “hesitating at the moment” due to economic uncertainty. “That will eventually pass,” he continued. And Toll Brothers CEO Douglas Yearley admitted that his company was being conservative with its outlook even though there are reasons for encouragement, particularly due to lower mortgage rates. “We also recognize that the underlying fundamentals that fuel housing demand in the long term have not changed,” he said, noting that demographics are favorable and housing supplies are tight. “All of these trends support demand for new homes.”

A 2026 housing uptick doesn’t look priced into the builder stocks. The iShares ETF is trading for just 14 times earnings estimates for 2026. KB Home, Toll Brothers, and DR Horton DHI +0.81% are even cheaper, with forward price/earnings ratios in the high-single-digits to low-double-digits range.

Darius Dale, founder and CEO of 42 Macro, an investment research firm, is bullish on the builders. He thinks that politicians in Washington will do all they can in a midterm election year to try to boost housing demand. “The administration may throw the kitchen sink at the market to try and fix housing,” he said. “That favors builder stocks, building suppliers, and retailers like Home Depot and Lowe’s.”

Nancy Tengler, CEO of Laffer Tengler Investments, agreed. “We can see regulatory relief from Washington. Whether it is through first-time buyer tax credits or additional incentives to home builders to increase supply, we believe the housing-related stocks will start to reflect expected improvement in the environment,” she wrote in a report, adding that DR Horton is one of her favorite stocks for 2026.

As Redfin notes, the housing recovery will take time. But the worst may be over. And that’s something to build on.

Federal Reserve & Rates

Interest-rate expectations will remain the dominant driver.

Any Fed commentary, speeches, or surprises in economic data could move yields — and that will move stocks.

Lower yields = support for tech/growth

Higher yields = pressure on high-multiple names


Key Economic Data (Market Movers)

Watch especially:

Inflation-related data (CPI / PPI or related components)

Consumer data (retail sales, sentiment)

Jobs data (claims, employment trends)

Huge week ahead. Volatility is likely to increase sharply. Sector rotation will be a key signal to watch. The market feels coiled, and this setup points to a potential late Santa rally.

— Richie

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