Anna's Markets Recap

_{Just facts, you think for yourself}

Saturday, 5:13 AM

December 27, 2025

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

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What Moved Markets Last Week

The final full trading week of 2025 served as a definitive microstructure study in liquidity-constrained momentum and thematic bifurcation. While the broader indices engaged in a characteristic "Santa Claus Rally," propelling the S&P 500 Index toward the psychological 7,000 barrier (closing near 6,932.05), the underlying mechanics revealed a market grappling with a complex transition from monetary dependency to fiscal dominance.

The macroeconomic backdrop has effectively shifted the consensus narrative from a "soft landing" to a "no landing" scenario—an environment where economic growth re-accelerates while inflation remains structurally sticky. The Bureau of Economic Analysis (BEA) confirmed that the US economy expanded at an annualized rate of 4.3% in Q3 2025. This robust acceleration defies the recessionary gravitational pull anticipated following the rate tightening cycle. However, this growth comes with a cost: the PCE price index persisted at 2.8% year-over-year. This stagnation nearly 100 basis points above the Federal Reserve's mandate creates a "higher-for-longer" floor for sovereign yields, causing the 10-year Treasury yield to consolidate in the 4.12% to 4.14% range.

A critical divergence emerged between equity optimism and bond market caution. Equity valuations imply an expectation of perfect execution—strong growth with falling costs of capital. Conversely, the bond market and the precious metals complex are pricing in significant "Reflation" risk and fiscal instability. This was most visibly evidenced by Gold’s historic breakout above $4,500, signaling that the market is hedging against sovereign debasement rather than traditional inflation alone.

The Golden Breakout The most significant macro signal of the week was Gold (COMEX) breaching $4,500/oz (+4.27%).

• Regime Change: Historically, Gold struggles when real rates are high (currently ~1.3%). The fact that Gold is rallying alongside high real rates suggests a breakdown of this correlation. The market is no longer viewing Gold solely as an inflation hedge, but as a hedge against Fiscal Dominance. Central bank accumulation (notably the PBOC) and fears of currency devaluation under the incoming administration are driving a price-insensitive bid for hard assets.

Tech and Growth

The Technology sector remained the primary source of alpha, though price action was dominated less by earnings and more by M&A arbitrage and derivatives-led valuation decoupling.

Netflix (NFLX) & The M&A Arbitrage Netflix defined the media landscape this week, entering a definitive agreement to acquire Warner Bros. assets for an enterprise value of ~$82.7 billion. This strategic move aims to unite Netflix’s distribution rails with a century-deep content library. However, volatility spiked as Paramount Global launched a hostile counter-bid for Warner Bros. Discovery valued at $108.4 billion.

• Derivatives Signal: Smart money adopted a "wait-and-see" approach. For the Dec 26 expiration, "Max Pain" was identified at $95.00. Shares oscillated tightly between $93.64 and $95.00, exhibiting classic "dealer pinning" as market makers suppressed volatility to capture premium decay. The lack of upside call buying suggests the market views this as a "show-me" story with significant integration risk.

Tesla (TSLA): The Gamma Squeeze Tesla decoupled from automotive fundamentals, staging a parabolic rally to record highs near $475.29. Despite a 23% decline in November sales volume, the stock surged on confirmation of driverless robotaxi testing in Austin.

• Microstructure: The move was fueled by a "Gamma Squeeze." Massive Call Open Interest at the $500 strike forced option dealers into a "short gamma" position, compelling them to buy the underlying stock aggressively to hedge as prices rose. The closing price aligned precisely with the weekly Max Pain of $472.50, demonstrating the outsized influence of option flows in low-liquidity holiday trading.

The "Magnificent Seven" Divergence

• Microsoft (MSFT): Traded flat (-0.06%). Investors are scrutinizing the ROIC on a projected $63B FY2025 Capex spend, though its dividend profile provides a valuation floor.

• Apple (AAPL): Underperformed ($273.14) due to geopolitical headwinds. Institutional flows showed heavy put buying for May, signaling hedging against potential 10% tariffs on Chinese manufacturing in Q1 2026.

• Nvidia (NVDA): Pushed to ~$190, buoyed by the "sovereign AI" thesis. Unlike Apple, Nvidia saw aggressive retail call buying, betting on a melt-up into the next earnings cycle.

Banks and Financials

Financials outperformed the broader market, driven by a structural rotation in capital allocation preferences: a pivot away from balance-sheet-heavy banking toward capital-light networks.

The "Buffett Signal" A defining moment was the revelation of Berkshire Hathaway’s portfolio adjustments. Warren Buffett significantly reduced positions in Bank of America (BAC) and Apple to establish a $4.9 billion stake in Alphabet (GOOGL). This effectively signals a reduction in exposure to the US consumer credit cycle and regulatory headwinds facing "Too Big To Fail" banks, in favor of the "moat" stability of Big Tech.

JPMorgan Chase (JPM): Strategic Pivot JPMorgan countered this sentiment by hiring Todd Combs from Berkshire to lead a new $10 billion investment initiative targeting industrial and tech sectors. This signals JPM's intent to act more like a conglomerate or private equity firm. However, shares faced headwinds due to guidance suggesting a 9% expense increase for 2026, highlighting the sticky wage inflation plaguing the service sector.

The Payments Duopoly While banks struggled with expense ratios, Mastercard (MA) hit a 21-week high of $579.45. The payments sector is the primary beneficiary of the current macro environment: nominal GDP growth of 4.3% directly boosts the total value of transactions. With holiday sales up 4%, the toll-taker model of Visa and Mastercard thrives on inflation without bearing the credit risk of rising delinquencies.

Consumer Goods and Healthcare

This sector exhibited a stark "K-shaped" divergence, driven by a singular technological breakthrough in healthcare and a trade-down phenomenon in retail.

Healthcare: The Oral GLP-1 Disruption On December 23, the FDA approved Novo Nordisk’s (NVO) oral formulation of Wegovy. This triggered a 9-10% surge in NVO shares.

• Implication: This approval solves the primary friction point of obesity treatment—injectable compliance. It effectively doubles the Total Addressable Market (TAM) by democratizing access via general practitioners.

• Peers: Eli Lilly (LLY) traded flat as the market awaits its oral candidate, orforglipron. UnitedHealth (UNH) stabilized (+1.3%) following earlier volatility, suggesting investors believe insurers have sufficient pricing power to pass on the costs of these new prescriptions in 2026 premiums.

Consumer Retail: The "Bifurcation" Trade

• Costco (COST) & Walmart (WMT): These retailers are winning the "trade-down." Costco reported 20.5% e-commerce growth, highlighting that inflation-weary consumers (even higher-income cohorts) are migrating to value-oriented channels.

• Home Depot (HD): Remains a laggard. HD acts as a proxy for the housing market, which is frozen by the "lock-in effect" of mortgage rates. The divergence between Walmart (hitting highs) and Home Depot (struggling) confirms consumers are spending on daily necessities while deferring capital-intensive home projects.

Energy and Industrials

Energy: Efficiency Over Commodity Beta The Energy sector provided a masterclass in operational efficiency decoupling from spot prices. Exxon Mobil (XOM) rose ~2.3% despite WTI Crude ending flat at $56.93.

• Analysis: Exxon’s outperformance is driven by "Capital Discipline." Investors are rewarding the ability to lower breakeven costs (via Permian efficiency and Guyana production) rather than betting on a commodity super-cycle. XOM has effectively signaled its dividend is safe even at $40 oil, making it a bond-proxy for equity income investors.

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Baked with love,

Anna Eisenberg ❤️