In partnership with

Anna's Markets Recap

_{Just facts, you think for yourself}

Saturday, 5:09 AM

December 20, 2025

Good morning news friend! Here is a quick recap of what happened in the markets this week. 📰🌟

The Gmail app usually clips the bottom quarter of our emails, we recommend you reading our full article online here.

What Moved Markets Last Week

The trading week ending December 20, 2025, marked a seminal shift in the post-pandemic economic landscape. Markets were defined not merely by index movements but by the shattering of the "Goldilocks" narrative—the hope for a seamless transition from high inflation to stable growth without labor pain. As the Federal Reserve executed a contentious interest rate reduction, equity markets grappled with a violent rotation of capital, moving aggressively from the hyper-growth engines of the artificial intelligence sector toward the defensive bastions of value and industrial cyclicality.

The divergence was stark: the blue-chip Dow Jones Industrial Average clawed its way to a gain of roughly 1.1%, capitalizing on the strength of financials and industrials, while the technology-heavy Nasdaq Composite faltered, shedding 1.6% as investors reassessed the durability of the AI capex supercycle. This bifurcation was the manifestation of a market re-pricing risk in real-time, exacerbated by the technical mechanics of a "Quadruple Witching" expiration and a macroeconomic data set distorted by government shutdowns.

The Federal Reserve: A House Divided 

On December 17, the Federal Open Market Committee (FOMC) announced a reduction in the federal funds rate by 25 basis points to a range of 3.50%–3.75%. This marked the third consecutive meeting with a rate cut, yet the decision revealed a deeply fractured committee. The vote tally was an irregular 9-2-1 split: two hawks dissented in favor of a pause, while one dove pushed for a 50-basis point reduction. This division signals that the Fed's reaction function is no longer unified; hawks remain fixated on the "last mile" of core services inflation, while doves are reacting to the deterioration in labor conditions.

The Fed’s updated Summary of Economic Projections (SEP) offered a confusing roadmap for 2026, creating a scenario of "stagflation-lite." Policymakers revised GDP growth forecasts upward to 2.3% while simultaneously bumping core PCE inflation expectations to 2.5%. This combination implies that the risk-free rate cannot fall as fast as bulls hope, while nominal growth may be eroded by persistent input costs. Consequently, the 10-year Treasury yield rose to 4.15%, a "bear steepening" phenomenon where long-term rates rise despite short-term cuts.

Data in the Dark & The Sahm Rule 

The release of the November Consumer Price Index (CPI) was severely compromised by the 43-day federal government shutdown. While the Bureau of Labor Statistics reported a headline CPI increase of 2.7% (below the 3.1% consensus), the data integrity was questioned due to missing October survey data. Algorithms and high-frequency traders largely disregarded the print as a statistical artifact.

More alarmingly, the unemployment rate ticked up to 4.6%, a four-year high. This triggered the "Sahm Rule," a recession indicator activated when the three-month moving average of the unemployment rate rises by 0.50 percentage points relative to its 12-month low. Paradoxically, job openings (JOLTS) rose to a five-month high of 7.67 million, indicating a severe shift in the Beveridge Curve—workers are available, but they lack the skills or proximity for open roles.

Market Mechanics 

Friday’s "Quadruple Witching" expiration exerted a gravitational pull on indices, with "Max Pain" levels preventing a breakout. Despite the tech sell-off, the VIX remained subdued in the 15–16 range, suggesting a systematic rotation by institutions rather than panic selling.

Gold

As correlations between stocks and bonds turned positive (both falling or struggling together), Gold reinforced its status as the only true diversifier, trading near $4,375/oz. This strength reflects safe-haven demand amidst the geopolitical friction and "stagflation-lite" fears emanating from the Fed's projections.

Tech and Growth

The technology sector, the undisputed leader of the bull market for the past 24 months, faced its most existential challenge yet. The narrative of "inevitable AI dominance" clashed with the realities of capital efficiency and geopolitical competition.

The "Sputnik Moment": DeepSeek The most consequential event for the sector was the ripple effect from the analysis of DeepSeek V3.2, a Chinese AI model. DeepSeek demonstrated that a model with reasoning capabilities comparable to OpenAI’s GPT-4/5 could be trained for approximately $6 million—a fraction of the billions spent by US hyperscalers. This served as a deflationary shock to the AI "moat" thesis.

Nvidia ($NVDA) shares fell 3.8% mid-week as investors questioned the demand curve for GPU clusters. If algorithmic efficiency allows for similar results with less compute, the "capex supercycle" may hit an air pocket. Microsoft ($MSFT) also underperformed; in a defensive move, it announced the availability of DeepSeek models on its Azure AI Foundry, effectively commoditizing its own partner, OpenAI, to maintain platform relevance.

Cloud Fragility Adding to the sector's woes, Microsoft suffered a significant outage of its Azure cloud platform due to a misconfiguration. This disrupted major enterprise clients like Costco and Starbucks, underscoring the "concentration risk" in the cloud economy precisely when Microsoft is asking enterprises to trust it with mission-critical AI workloads.

Semiconductors and Hardware 

Oracle ($ORCL) shares plunged 6.6% before a slight recovery after reports that a $10 billion data center deal had stalled, suggesting that financing for AI infrastructure is becoming more discerning. Broadcom ($AVGO) traded in sympathy with broader semiconductor weakness. Meanwhile, Apple ($AAPL) continued its geopolitical pivot, accelerating plans to move 25% of iPhone production to India. While exports from India surged 53%, lower yields compared to Chinese factories are weighing on margin expectations.

Banks and Financials

Financials outperformed the broad market, driving the Dow Jones Industrial Average higher. The sector is benefiting from the "higher for longer" long-end yields, even as the Fed cuts the short end.

The Banking Renaissance 

The "bear steepening" of the yield curve creates an ideal environment for Net Interest Margin (NIM) expansion. JPMorgan Chase ($JPM) is increasingly viewed as a "fortress" asset, with analysts touting it as a candidate for the "$1 Trillion Market Cap Club." It acts as a proxy for the US economy but with superior risk controls. Bank of America ($BAC) also found support, declaring a quarterly dividend of $0.28 per share. The combination of yield (~2%) and buybacks offers a compelling total return profile in a volatile market.

Payments Regulation 

A significant regulatory battle flared up involving Visa ($V) and Mastercard ($MA). A coalition of retailers led by Walmart filed a formal objection to a proposed antitrust settlement regarding swipe fees. While this creates headline risk, investors largely ignored it, focusing on the resilience of the "toll booth" model: as nominal transaction volumes rise due to inflation, revenues for the payment duopoly rise automatically.

The Crypto Decoupling 

The financial sector witnessed a sharp decoupling of crypto-assets. Bitcoin ($BTC) fell from highs of ~$90,000 to trade around $85,000–$88,000. This drag pulled down crypto-linked equities like MicroStrategy (-7%) and Coinbase (-5%). The correlation between Bitcoin and the Nasdaq remains high; as liquidity exited the AI trade, it also exited crypto, reinforcing the view that the asset class currently behaves like a "high-beta tech stock" rather than a non-correlated store of value.

Consumer Goods and Healthcare

This section offered the most conflicting data points, painting a picture of a "K-shaped" economy where the affluent pull back while the middle class focuses on value.

Healthcare: The Bifurcation Healthcare was the best-performing sector, acting as a defensive haven, but performance was split between the "GLP-1 Haves" and "Managed Care Have-Nots."

• Eli Lilly ($LLY) rose 1.4%, with its GLP-1 franchise (Mounjaro/Zepbound) transitioning to a consumer staple status. In Q3 2025, tirzepatide officially became the world’s best-selling drug, providing unrivaled cash flow visibility.

• UnitedHealth Group ($UNH), in contrast, faced a "perfect storm." Shares languished (down ~35% YTD) following the tragic loss of its CEO and a lowered 2025 earnings outlook due to higher medical costs. The company announced the sale of its South American operations to retrench.

• Biotech Rotation: Investors rotated into mid-cap biotech, with stocks like Amicus Therapeutics surging 30%. With big pharma facing patent cliffs and lower interest rates making M&A cheaper, the sector is being front-run for potential acquisitions.

Consumer: The "Flat" Truth US Retail Sales came in flat (0.0%), missing expectations. Strength in e-commerce (+1.8%) was offset by weakness in autos (-1.6%) and building materials.

• Costco ($COST) remained resilient despite high valuations. The thesis remains that in an inflationary environment, consumers flock to bulk buying, making its membership fee model a bond-proxy for equity investors.

• Nike ($NKE) collapsed over 10% after lowering guidance due to weakness in China. Nike serves as a "canary in the coal mine" for the Chinese consumer; if the middle class there is not buying premium apparel, Beijing's stimulus measures are failing to trickle down.

Energy and Industrials

While often overshadowed by the tech narrative, the movements in the physical economy provided critical signals about the global demand outlook for 2026.

Energy: The Deflationary Signal Energy prices collapsed, with WTI Crude falling approximately 4.2% to settle near $56.00. This sell-off was driven by fears of a supply glut in 2026 and waning demand. While this offers some relief on headline inflation, it signals concern about global industrial activity.

Industrials: The Rotation Beneficiary Despite the weakness in energy prices, the broader industrial sector saw capital inflows as part of the "Great Rotation." Investors are seeking "real economy" stocks that trade at reasonable valuations compared to the tech sector.

• Home Depot ($HD), a key proxy for the housing and construction industrial complex, faced headwinds from the housing freeze. The company updated guidance to reflect "softer-than-expected" results but highlighted a strategic pivot to source from small US businesses to mitigate potential future tariffs.

  We don’t take shortcuts, chase headlines, or push narratives. We just bring you the news, straight and fair. If you value that, click here to become a paid subscriber—your support makes all the difference.

Baked with love,

Anna Eisenberg ❤️