Market Analysis - Short Term Outlook
Date: December 19, 2025
Analyst: Nathan Peterson
Current Market Overview
Stocks have shown a late-week recovery, primarily driven by positive inflation data. However, the potential for a year-end rally remains uncertain. The major indices have been flat to slightly down this week, with a notable sell-off in tech stocks due to ongoing concerns regarding AI. Despite this, a recovery was noted in the latter part of the week, supported by strong earnings from Micron Technology and cooler-than-expected CPI data.
Short Term Outlook
As we approach the holiday-shortened trading week, the outlook remains "Slightly Bullish." The market is expected to experience light trading volume, which could lead to increased volatility. The mixed economic signals and technical indicators present a challenging environment for forecasting market direction.
The S&P 500 Equal Weight Index (SPXEW) has shown a recovery, indicating bullish sentiment, while the Russell 2000 Index (RUT) remains cautious, having failed to reclaim its breakout level. The potential for a Santa Claus rally exists, but it is contingent on market conditions and investor sentiment.
Economic Indicators
Next week’s economic calendar includes several key reports:
- Monday (Dec. 22): No reports
- Tuesday (Dec. 23): Capacity Utilization, Durable Orders, Q3 GDP – Advanced Reading, Industrial Production, New Home Sales
- Wednesday (Dec. 24): Continuing Claims, EIA Crude Oil Inventories, Initial Claims
- Thursday (Dec. 25): No reports
- Friday (Dec. 26): No reports
Market Sentiment and Technical Analysis
Recent data from Bank of America indicates a high level of bullishness among fund managers, which historically suggests potential declines in the following months. The SPXEW's recovery is encouraging, but the RUT's performance raises concerns about the sustainability of the rally.
Overall, while the intermediate and long-term trends remain bullish, the near-term outlook is mixed. Rising U.S. Treasury yields could pose a challenge to market performance, particularly for the more rate-sensitive sectors.
Conclusion
In summary, the market outlook for the short term is cautiously optimistic, with a "Slightly Bullish" forecast. Investors should remain vigilant, as the potential for volatility exists due to mixed economic signals and technical uncertainties. The upcoming week will be critical in determining whether a Santa Claus rally can materialize.