/ December 15 / Weekly Preview
-
Monday:
NY Empire State Manufacturing Index
---
Tuesday:
(backdated)
Non Farm Payrolls
Retail Sales
Unemployment Rate
Average Hourly Earnings
Business Inventories
Housing Starts
---
Wednesday:
Fed Speakers
---
Thursday:
Inflation Rate YoY (3.2% exp.)
Core Inflation Rate (3.2% exp.)
Initial Jobless Claims (230K exp.)
---
Friday:
Existing Home Sales
-
Monday:
N/A
---
Tuesday:
Lennar Corporation
---
Wednesday:
Micron Technology, Inc.
---
Thursday:
Accenture plc
Nike, Inc.
Cintas Corporation
FedEx Corporation
---
Friday:
Paychex, Inc.
Carnival Corporation
ConAgra Brands, Inc.
A Dovish Fed Fails To Excite
Got a question about the markets, your investments, or a topic you’d like us to discuss in an upcoming article? We read every message and may feature your question in our daily write-ups!
Email: andrei@signal-sigma.com
Follow & DM on X: @signal_sigma
The past week, a deeply dovish message sent by the Fed failed to resonate with investors in most asset classes. The FOMC cut the federal funds rate by 25 basis points to a range of 3.50% to 3.75%. This is the third rate reduction this year. As we’ve seen in the past, the decision was not unanimous, with notable dissent present in the 9-3 vote. There were 3 members which opposed the cut and one who advocated for a larger cut. In the context of missing economic data due to the government shutdown, such a disagreement is unsurprising.
More relevant in the post-meeting analysis is the Fed’s shift in focus toward unemployment as a more relevant aspect of their dual mandate. At the press conference, Powell noted that job growth has decelerated and downside risks to employment have risen. He even went further, suggesting that official data is overestimating job growth by around 60,000 jobs per month. If true, it means Powell is hinting at a job market contraction over the past few months. It also means that potential negative payroll growth is the reasoning behind the Fed’s dovish tilt.
The recently released level of Job Quits (1.8% as of Dec. 09, and a leading indicator) is now at levels previously associated with economic contraction should it decline further.
The Fed also announced that it will begin monthly purchases of approximately $40 billion of short-term U.S. Treasuries. These purchases are aimed at managing reserve balances and ensuring ample liquidity in money markets. We would not view this as outright stimulus for the economy, though economists and analysts are likely to debate the nuance in the coming weeks. The purchases are slated to begin on December 12 and will remain elevated for multiple months to address any near‑term liquidity pressures.
Other key highlights from the FOMC meeting include:
Upgraded GDP Growth for 2026 from 1.8% to 2.3% — reflecting confidence in economic resilience;
Trimmed inflation expectations — expectations are for inflation to continue easing toward the Fed’s 2% target over time;
Downside risks to employment — unemployment is projected near current levels, but the recent weakening trend has officials worried and is likely to place the labor market as a priority next year;
These combined forecasts are somewhat puzzling, since they imply accelerating growth in an environment of slowing inflation and labor data. A.I. may start to fill in some productivity gaps, but it’s unclear if the Fed views the technology as a threat to be combatted or a tailwind to its goal.
As it stands, it looks like A.I. will be great for short-term corporate profitability, while hurting the prospects of most Americans (those that get replaced). In this sense, it’s entirely possible that recent inequality trends will accelerate.
Nonetheless, markets initially rallied but failed to fully break out. Gold was the only main asset class to end the week on a positive note, with equities, bonds and commodities finishing on a lower note.
The S&P 500 closed the week at 6.847, maintaining its bullish posture. There was a breakout attempt on Thursday which was rejected by a risk-off session on Friday. All-time highs above $689 on SPY now become a pivot level and short-term ceiling.
Volume has been weak on the most recent rallies and technical indicators like the MACD and RSI are starting to diverge bearishly. There’s been solid accumulation in Dark Pools over the past week (61% for SPY), but Total GEX is neutral (0%), driven by short term volatility expectations. On Friday, options flows were deeply bearish across major stocks and ETFs. It looks like we are setting up for a support retest at $672, as would be expected after the most recent V-shaped recovery. Technical resistance stands at $710 (R1).
Should the market not be able to hold at the $672 area, downside becomes sizable yet again, with the next level of support at $630 (S1).
For now, the most likely path until year end is range-bound in the current support-resistance range.
From a seasonal standpoint, we are entering a window where fund flows, tax positioning, and institutional rebalancing are acting as bullish tailwinds. For this week, several critical macroeconomic releases and a modest earnings slate will dominate short term direction, especially from Tuesday onward.
Mid-week labor and retail figures may impact the narrative on growth and consumer strength, especially following the recent dovish Federal Reserve communications. Keep in mind that the market will be digesting past data unreleased due to the government shutdown. This only serves to confirm if the Fed’s decision was correctly supported.
Sell Signals have now expired, with no new bearish flags on the horizon. Furthermore, rate cuts especially near all-time highs tend to be bullish.
Despite the loss last week at the headline level for SPY and QQQ, market breadth has improved and Small Caps (IWM), Mid Caps (MDY) as well as the Equally Weighted S&P 500 (RSP) posted positive returns.
The rotation out of Tech (XLK) and Mega Caps (MGK) is ongoing, to the benefit of the broad market. This is generally bullish.
Also, another bullish indicator comes from the top 10 stocks in the market and underlying options positioning. The chart below looks at the trends in combined long term upside (upper histogram) and the trend in medium and short term downside (lower histogram).
Both trends are showing improvements, meaning that the market is becoming less concerned about immediate losses, while long term upside is no longer being downgraded, as was the case until recently. Median upside is currently slated at +22%, near the middle of the historic range.
All told, we are fans of positioning within the Enterprise strategy. For the current environment, a diversified approach, especially between bonds and stocks, makes the most sense.
Gold and Equities are essentially the same trade at the moment (momentum chasing), so the real diversifier are cash, bonds and commodities. We would not take a more defensive stance than this, but there is amble reason to hold some cash in order to hedge volatility and have some dry powder on hand to buy an potential dip.
Our Trading Strategy (Sigma Portfolio)
The market still appears to be in rotation mode, with the next couple of weeks likely to sustain the same trend. Tech and Communications remain vulnerable to short term pullbacks which would benefit Real Estate, Materials and Staples names. As factors, Mid and Small caps are likely to benefit, as the market cools off on mega cap names.
From an asset class allocation perspective, we would be inclined to follow Enterprise, with tomorrow’s upcoming rebalance likely not to change meaningfully. Bonds are now at attractive levels, but we’re holding all of the necessary treasury exposure for now.
We will be making an adjustment this week, most likely on Tuesday or Wednesday, after our models rebalance. As per usual, trading will be posted in the Market Updates section, and we’ll also send these by email to subscribers.
Signal Sigma Research & PRO members will be notified by Trade Alert of any live portfolio changes (if subscribed). If you’re not on this plan yet, you can get a free trial when you join our Society Forum. If you need any help with your trading strategy (or would like to implement one on your account), feel free to reach out!
Disclosures / Disclaimers: This is not a solicitation to buy, sell, or otherwise transact any stock or its derivatives. Nor should it be construed as an endorsement of any particular investment or opinion of the stock’s current or future price. To be clear, I do not encourage or recommend for anyone to follow my lead on this or any other stocks, since I may enter, exit, or reverse a position at any time without notice, regardless of the facts or perceived implications of this blog post. I currently do not own or plan to own any position, long or short, in the securities mentioned.
I am not a financial advisor licensed in the United States. Nor am I providing any recommendations, price targets, or opinions about valuation regarding the companies discussed herein. Any disclosures regarding my holdings are true as of the time this article is written, but subject to change without notice. I frequently trade my positions, often on an intraday basis. Thus, it is possible that I might be buying and/or selling the securities mentioned herein and/or its derivative at any time, regardless of (and possibly contrary to) the content of this blog post.
I undertake no responsibility to update my disclosures and they may therefore be inaccurate thereafter. Likewise, any opinions are as of the date of publication, and are subject to change without notice and may not be updated. I believe that the sources of information I use are accurate but there can be no assurance that they are. All investments carry the risk of loss and the securities mentioned herein may entail a high level of risk. Investors considering an investment should perform their own research and consult with a qualified investment professional.
I wrote this blog post myself, and it expresses my own opinions. I do not have a business relationship with any company whose stock is mentioned in this blog post. The information in this blog post is for informational purposes only and should not be regarded as investment advice or as a recommendation regarding any particular security or course of action.
The primary purpose of this blog post is to share industry expertise and research and receive feedback (confirmation / refutation) regarding my investment theses.