Year-End Rally Is Back On Track ?

Nov. 25, 2025 8:57 AM

Lawrence Fuller

Investing Group Leader

Summary

• Stocks surged broadly, led by tech, as nine of eleven S&P 500 sectors rose and the Nasdaq posted its best day since May.
• Bitcoin’s rally signaled speculative excess has been reduced, setting the stage for a potential year-end stock market rally.
• Fed officials’ dovish comments increased expectations for a December rate cut, now seen as 85% likely, supporting further market gains.
• Despite labor market concerns, strong consumer spending and falling inflation expectations point to a soft economic landing and renewed growth in 2026.

Investors returned in force yesterday to buy stocks, led by the beaten up technology sector, but it wasn’t just tech, as nine out of 11 sectors that constitute the S&P 500 index rose. The Nasdaq Composite had its best day since May. It is no coincidence that Bitcoin rallied off its recent low of approximately $80,000 to surpass $88,000, prior to the burst in stock prices, along with the rest of the cryptocurrency space. That tells me that we have wrung out a lot of the speculative excess in this market, which sets the stage for the year-end rally.

The selling in crypto land exacerbated the selling in magnificent ones, which collectively soared 3.2% yesterday, led by Alphabet. I am less sanguine about a near-term recovery in these seven names to new all-time highs as I am expecting a broadening of the participation we have seen since the April lows. I think this will be instigated by productivity increases for the 493 companies in the S&P 500, which are just starting to realize the benefits from AI. That should override valuation concerns for the broad market, as higher profit margins support higher valuations for the names left behind in this bull market. This will be the story of 2026 that leads to the next leg up.

Friday’s rally was instigated by comments from New York Fed President John Williams who sees a rate cut in December as more likely than not. We had further confirmation that another rate cut is coming yesterday from San Francisco Fed President Mary Daly, who indicated that labor market weakness is a higher priority than the rate of inflation right now. Then Boston Fed Governor Christopher Wall repeated that he would like to see the rate lowered at the December 10 meeting. The probability for a rate cut has now risen to 85%.

There are increasing concerns about the weak labor market, which is understandable. This is a risk that should not be ignored. But most investors don’t recognize that the number of jobs created does not go into the calculation for the rate of economic growth, nor is it the primary driving force behind consumer spending, which is the most important input to growth. We will finally have the retail sales number for September this morning, and I suspect it will show that consumers are still spending at a healthy clip, which makes me less concerned about the labor market. Spending is the primary driver of job creation.

Furthermore, inflation expectations in the marketplace have collapsed from the tariff-tantrum days, which is probably why a growing number of Fed officials are more focused on stimulating growth in 2026 with lower short-term interest rates. This is what a soft landing looks like, which most investors have never seen before unless they were involved in the markets in the mid-1990s. This landing has not been smooth, as the economy bounced off the runway earlier this year in April when the Consumer Price Index (CPI) touched 2.3%. I expect we will take another shot at that landing next year, but this time it will be a successful one.