An eventful week on Wall Street and a lot to cover so I will sum up the salient points below:
Durable Goods Orders +5.3%
November durable goods orders surged 5.3% after a revised 2.1% October decline, beating expectations of 3.7%. The headline was driven by a 97.6% spike in civilian aircraft bookings (Boeing orders rebounding), with transportation equipment up 14.7%. Beneath the volatile aircraft numbers, the core trend shows businesses still investing in equipment and AI infrastructure, though tariff uncertainty remains a headwind for 2026.
Fed Interest Rate Decision – No Change
The FOMC held rates steady at 3.5%-3.75% – the vote was 10-2, with dissents from Miran and Waller who preferred a 25bp cut. Powell emphasized the economy is on “firm footing” with solid growth and stabilizing unemployment, though inflation “remains somewhat elevated.” No fireworks here.
Trade Balance – Worse Than Expected
The November trade deficit exploded to $56.8 billion from a revised $29.2 billion in October (which was the smallest since June 2009), far exceeding the $40.5 billion forecast. The deficit widened notably with the EU ($14.5B) and remained elevated with China ($14.7B), Vietnam ($16.2B), and Mexico ($17.8B). This is a headwind for GDP if it continues.
Producer Price Index – Came in HOT
December PPI rose 0.5% monthly (+6.0% annualized), well above the 0.2% consensus, with year-over-year PPI at 3.0%. The surge of Natural Gas prices (+35%) due to cold weather had a significant impact that will likely impact the January umber. Year-over-year core PPI accelerated to 3.3% from 3.0%, exceeding the 2.9% forecast. The 6-month average core PPI is running at 4.3% annualized.
New Fed Chair Nomination – Kevin Warsh
This was the ‘safety’ pick out of all the candidates and he is a former Fed Governor and will have no problem getting approved once the Senate moves forward with the affirmation process. He has voiced concerns about the size of the balance sheet but that is an issue for later this year or 2027.
The S&P 500
Earnings from some of the big cap names like Apple, Microsoft, META, and Tesla were released this week and their numbers largely came in better than expected. However, the S&P (+1.3% this week) experienced several intra-day drops and pops. In the bigger picture below, we are working off overbought conditions that developed last year. Since last October, the S&P 500 has been hovering below fibonacci resistance at 6975.
Many earnings reports are on tap in the next two weeks so perhaps we will get a breakout in February if they continue to beat expectations.
Metals Complex
The precious and industrial metals complex has gone vertical over the past few months and these types of moves never last. In many cases, all of the gains are given back and seeing silver down 27% on Friday is a warning that a topping process is taking place (gold was down 9.5%). These sharp reversals can bleed in to other sectors as levered investors sell other holdings to raise cash. You can also make the case that profit takers are re-allocating to other areas of the stock market like small caps so this will be a sector to watch.
Bond Vigilantes Never Die
The higher than expected PPI combined with the potential for a new Fed Chair may be the signal that the curve will continue to steepen this year. In other words, expect the right side of the graph below to keep going higher.
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President, Kisco Capital
