December Outlook: All Eyes on the Fed By: Jeffrey A. Hirsch & Christopher Mistal | November 20, 2025 | Email | Print

Happy Thanksgiving to you and your family!

 

This season always reminds us how fortunate we are to do what we do. It is a privilege to share our market analysis, outlooks, and recommendations with you — and we are deeply grateful for your trust. 

 

To our long-time members, thank you especially for your continued loyalty. Helping you navigate markets and manage your family’s wealth is an honor we never take for granted. 

 

We’re also thankful to those who join us each month on our members-only webinar. Your questions, insights, and candid conversations make the dialogue richer and help shape the work we do. That exchange of ideas is truly invaluable. 

 

Wishing you and your loved ones a happy, healthy, and peaceful holiday season.

 

Before we dive into this month’s outlook we wanted to share a few publication notes. As you can see, we are publishing the December Outlook today instead of the usual time on the last Thursday of the month as that is Thanksgiving this November. We pulled everything forward this month to work around the holiday. Last week we published the December 2025 Almanac and on Tuesday next week ahead of the holiday we will host the monthly members-only webinar. 

 

• December Almanac was published November 13

• December Outlook today November 20

• Monthly member’s only webinar Tuesday November 25, 4pm ET

• Office Closed Thanksgiving November 27

• ETF Issue December 4

• Stocks Issue December 11

• 2025 Annual Forecast/January Outlook December 18

• Free Lunch Stock Picks December 20

• January Almanac December 23

• Office Closed December 24 to January 1 

(Unless there is a major market or world event that warrants a Special Update)

 

We have heard a lot of complicated explanations for the recent decline. There was a Bitcoin automatic deleveraging (ADL) event that was triggered on October 10 by the US-China trade escalation generating the largest ever one-day forced liquidation event. Bitcoin is down over 30% from that day. But the bulk of that drop has transpired since a much more traditional finance event. After rallying back up to 115,000, BTC fell off a cliff following the now infamous October 29 FOMC meeting and Fed Chair Powell’s presser that day where he flip-flopped from being dovish for many months and told the market no, I’ve changed my mind, no more cuts right now.

 

Crypto has clearly become a leading sentiment indicator for the stock market. But if we step back and look at the timing and nature of the market pullback and simplify our analysis it really looks like it’s all about the Fed. They may never have promised to cut more, but they sure led the market to believe that was the direction for a good part of the year, even as inflation metrics drifted higher, they began pointing to their concerns with the labor market. While the economy and the labor market may be on decent footing, the correlation of the Fed’s most recent waffling at their last FOMC meeting on October 29 with the current decline is undeniable. Look at the chart below of the NASDAQ, S&P 500 and Bitcoin since the October 29 FOMC line in the sand. NASDAQ hit its last all-time high (ATH) on October 28, S&P 500’s was reached on the 29th.

 

 

S&P 500 is now down 5.1% from its October 28 ATH. NASDAQ is down 7.8% from its October 28 ATH. Russell 2000 is down 8.5% from its October 27 ATH and the Dow is now off 5.2% from its November 12 ATH. The market has not had a pullback of this magnitude since April. While many AI tech stocks, cryptocurrencies and other highflyers are down more significantly, many other stocks and sectors are up over the past few weeks such as Walmart, Regeneron, Biotech and Healthcare. 

 

This pullback brings up questions about whether this is the start of something bigger. Our view is it’s a healthy pause after a long upside run without one, not a major correction or end of the bull market. November dips often precede year end seasonal strength and December is still one of the top three months of the year. Typical mid-November weakness has been exacerbated by the Fed’s waffling on rate cuts, short term overbought conditions, frothy sentiment, a bit too much leverage and some forced liquidation in the crypto markets. 

 

S&P 500 retested the October 10 lows today. But as you can see in the updated S&P 500 Post-Election Year Seasonal Pattern chart, the blue-chip index is still above two of the three bullish post-election year lines and up 11.2% year-to-date though the rally has clearly stalled at the moment. Seasonals are in our favor, and the economy remains on solid footing, but if current support fails the market appears vulnerable to fall further into a 10% correction or a bit more on the S&P.

 

 

 

Despite today’s reversal and the pullback over the last few weeks, the S&P 500’s 11.2% YTD gain as of today’s close is bullish. Holding these double-digit gains into next week is important. When stocks logged double-digit gains YTD on the on the Tuesday before Thanksgiving, in general market gains continued into yearend.

 

There are a few blemishes in the 36 previous years, but most importantly, there are no major selloffs on this list. The big December decline of -9.2% in 2018 came after the S&P 500 was down -1.2% at this point in the year. After double-digit YTD gains the S&P 500 was up 70% of the time from the Tuesday before Thanksgiving to yearend for an average gain of 2.2%.

 

Also of note is that the Santa Claus Rally suffered only five losses in these years. But these five down SCRs in 1955, 1968, 1999, 2014 and 2023 were followed by flat years in 1956 and 2015, down years in 1969 and 2000, but solid gains in 2024. As Yale’s famous line states (2025 & 2026 Almanac page 118): “If Santa Claus Should Fail To Call, Bears May Come to Broad and Wall.”

 

 

 

December is the third best month of the year for DJIA, S&P and NASDAQ and #2 for Russell 2000 and yearend is frequently when the market hits new highs. December opens a little soft with zero clearly bullish days in the first week of the month often attributed to tax loss selling. This in turn sets up the early “January Effect” when small cap stocks tend to outperform large caps over the last two weeks of the year into mid-January. 

 

Small cap seasonality appears to be stirring and could be setting up for their annual yearend rally into Q1. As we point out on pages 112 and 114 of the Almanac, a significant amount of the “January Effect’s” small-cap outperformance actually takes place in the last half of December as tax-loss selling typically abates.

 

As you can see from the accompanying chart, small caps have been tracking the pattern reasonably well since July. August’s low was earlier than usual and strength lasted longer into mid-October, but July and October weakness were also present. This week’s spike lower and then back up appear to be aligning with November’s typical small-cap low. But small caps can exhibit some choppy trading from now through mid-December and patience has generally been rewarded with opportunities presenting through mid-December.

 

 

Our Free Lunch strategy (2026 STA p 116) targets early-December tax-loss selling and year-end seasonal strength. The Free Lunch Basket will be compiled after the close on December 19, 2025, AKA Triple Witching Day, and emailed to subscribers over the weekend on Saturday, December 20. 

 

And of course, there’s the “Santa Claus Rally,” (2026 STA p 118) invented and named by Yale Hirsch in 1972 in the Almanac. Often confused with any Q4 rally, it is defined as the short, sweet rally that covers the last five trading days of the year and the first two trading days of the New Year. Yale also coined the phrase: “If Santa Claus should fail to call, bears may come to Broad and Wall.” This is the first leg of our January Indicator Trifecta (2026 STA p 20) which includes the “First Five Days” (2026 STA p 16) and the full month “January Barometer” (2026 STA p 18), also invented and named by Yale Hirsch in 1972. This January Trifecta helps us affirm or readjust our outlook. When we hit this Trifecta and all three are positive S&P is up 90.6% of the time with an average gain of 17.7%.

 

Current support levels around today’s close appear crucial. If the current malaise and selling pressure do not abate shortly and the market fails to mount a comeback soon, it may be some time before we hit new all-time highs again. So, if the Fed doesn’t stay naughty and changes its hawkish stance stocks can resume their rally to year end and bring the Santa Claus Rally to Wall Street.

 

 

It was just one week and a day ago that DJIA last closed at a new all-time high above 48,000 for the first time ever (1). Celebrations were short-lived as DJIA has briskly retreated since then to fall below its 50-day moving average earlier this week. As of today’s close, DJIA was down 5.2% from its last high close. This is still in the range of a rather typical, and usually healthy, 5% pullback following a period of robust gains.

 

DJIA’s shift in momentum and quick retreat has been confirmed by both the faster and slower moving MACD indicators (2). Both MACD indicators turned negative on November 14 and remain so through today’s close. DJIA’s uptrend from its April lows remains intact as long as it does not break meaningfully below its October lows.

 

 

At the start of this week DJIA logged its sixth Down Friday/Down Monday (DF/DM) of the year (3). Historically, DF/DM occurrences have been associated with market inflection points and/or shifts in sentiment (page 78 STA). Looking back at the five previous DF/DM’s this year, DJIA posted a weekly gain three times and a weekly loss twice immediately following the DF/DM. Odds for a typical year-end market rally would improve notably if DJIA can recover its losses from this recent DF/DM before Thanksgiving and/or the end of November.

 

Despite the recent pullback, the market’s weekly performance over the last five weeks still appears rather respectable. DJIA and S&P 500 (4) have both logged gains in four of the last five weeks. NASDAQ has been down two weeks in a row but was up over 2% per week for three straight weeks (5). S&P 500 and NASDAQ uptrends from April’s lows also appear intact as long as October’s lows are not decisively broken.

 

Market breadth remains an area of concern. Up until late October the concern was mostly due to concentration of Mag 7 stocks in major indexes. Since then, the Hindenburg Omen has triggered, and Weekly Decliners have outnumbered Weekly Advancers for three straight weeks (6). The Hindenburg Omen is rather nuanced and is based upon daily breadth data. There are apparently multiple ways to calculate the Hindenburg Omen as well as additional technical indicator requirements that must also be satisfied. It is also known for producing false positive readings and getting tripped up by sector rotation/changes in market leadership. With or without the Hindenburg Omen, there is plenty of room for improvement in market breadth data. But that is not going to happen until the major indexes find their footing and begin moving higher once again.

 

New 52-week Highs and Lows (7) are still providing mixed signals. Ideally, we would like to see the number of New Highs steadily expanding while New Lows declined and/or stabilized around a low level. However, over the last four weeks, the number of New Lows choppily increased while New Highs bounced between 229 and 293. And during the week ending November 7, New Lows outnumbered New Highs. The last time there was just a single week of more New Lows than Highs was back in August 2024. After that occurrence DJIA and S&P 500 enjoyed a streak of nine weekly gains in ten weeks.

 

Short-term and long-term Treasury bond yields have reversed course and have begun moving higher over the last three weeks (8). This reversal occurred during the week when the Fed last met and began casting doubt on another interest rate cut in December. A lack of economic data due to the Federal government shutdown also contributed to some degree. It will likely take yet another shift in Fed “speak” for Treasury bond yields to begin retreating again. Until then, the market is likely to remain choppy and volatile.

 

Historically, lower interest rates have been positive for consumers and stocks. Interest rates may have also finally retreated sufficiently to revive the housing market with mortgage rates falling to the lowest level in about a year.