Did the Santa Rally Begin and End Last Week?: Dec. 30, 2025

Stocks, Treasuries and the greenback have traded back and forth from modest losses to marginal gains today as it appears that the Santa Claus rally began and ended last week, when the S&P 500 hit a fresh record on the Friday after Christmas. But despite this morning’s economic calendar consisting of lighter-impact reports, this afternoon’s Fed minutes could compel the market to choose a direction, although that’s unlikely since it’s a slow day with subdued volumes. Tomorrow features a similar backdrop with many traders waiting until January to reevaluate positioning. Meanwhile, fixed-income watchers are still penciling in two rate cuts next year even as discussions at the central bank grow increasingly contentious, with some members opining that growth and inflation are too momentous to justify accommodation, while others support the argument that fragile labor conditions warrant imminent loosening. The debate occurs as President Trump is looking for cheaper borrowing costs and gears up to nominate a new chair, with those probabilities narrowing significantly lately across the two Kevins, with Hassett now at 43% and Warsh at 38%, according to our participants. In the commodity complex, gold and silver are recovering from yesterday’s plunge while heightening geopolitical tensions between Washington and Caracas, Moscow, Tehran and Beijing are lifting energy inputs: namely crude oil and natural gas. Copper and lumber are also experiencing price increases. In crypto and in prediction markets, bitcoin and forecast contracts are additionally catching bids.

Short-and Long-Term Inflation Expectations

The release of December minutes from the Federal Reserve’s meeting is likely to signal that several officials believe that the easing cycle has culminated, while others think there’s a lot of room for cuts. Meanwhile, short-term inflation expectations are beginning to lift, as participants realize that reaccelerating growth paired with rate reductions could raise price pressures and that supports a wait-and-see approach at best for markets, or a reversal to hikes at worst. However, longer-haul estimates of cost forces have been rising more modestly, adding credence to the view that the benchmark’s neutral level is much lower. Murky data from the government due to the longest shutdown in history certainly isn’t helping investors make sense of where we are at the moment, but my analysis, based on the totality of the incoming reports, is that activity is ramping up and inflation remains above target amidst labor conditions that are just okay, not terrible or great. Finally, though, monetary policies around the world are tilting towards tighter, rather than looser, and that dynamic bodes poorly for the US dollar, which is poised to have another down year in 2026.

International Roundup

South Korea Industrial Production Disappoints

South Korea’s industrial production climbed 0.6% month over month (m/m) in November, a reversal from the 4.2% slip in the preceding month but weaker than the economist consensus estimate of 2.2%. Despite the uptick, results were down relative to November 2024, with production sinking 1.4% after falling 8.2% year over year (y/y) in October. A consensus of economists anticipated that output would grow 3% last month.

The manufacturing sector expanded its output by 0.7% m/m, reversing the 4.2% drop in October, but the level was down 1.5% from the year-ago period. In the preceding report, manufacturing fell 8.4% y/y. In other areas, construction was up 6.6% m/m but down 17% y/y after falling 21.1% m/m and 24.8% y/y in October. The service industry, furthermore, posted 0.7% and 3% m/m and y/y gains. In October, the sector was down 0.7% m/m but up 0.8% y/y. 

Retail Sales Falter as Stimulus Ends

Shoppers in South Korea reduced their spending by 3.3% in November relative to the preceding month, according to the Retail Sales Index. In October, the gauge reflected a 3.6% m/m increase. The m/m result was the biggest drop in 21 months and resulted, at least in part, to the waning effects of government stimulus. Even with the recent monthly decline, however, cash registers rang up 0.8% more than in the year-ago period.

Business Sentiment Remains Negative Despite Improving

Increased demand for semiconductors, shipping and automobiles helped push the South Korea Composite Business Sentiment Index to its highest level since July 2024, but the gauge still depicts that a majority of entrepreneurs have a downbeat view of overall conditions.  The gauge climbed 1.6 points to 93.7 for this month, according to the Bank of Korea. Any reading below 100 implies that more business leaders are pessimistic than positive. Within the index, the manufacturers component was 1.7 points higher at 94.4 while the non-manufacturers segment hit 93.2, an improvement of 1.4 points. Within the latter category, Black Friday sales and an increase in tourists from China helped improve sentiment.