The Santa Rally comes early to Wall Street as a softening labor market, mixed ISM data, and tame inflation clear the way for a “gift” interest rate cut at the Fed’s December meeting next week. Wall Street is also cheering the kickoff of the holiday shopping season which is off to a strong start. Lower rates should further lift business and consumer spending, giving a much-needed jolt to the U.S. economy amid tariff uncertainty. Investors have been busy positioning themselves accordingly, lifting the small cap Russell 2000 Index to a 0.84% gain for the week. Larger peers, the Dow Jones Industrial Average and S&P 500 increased as well, up 0.50% and 0.31%, respectively – both hovering near all-time highs.
Key Data:
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Private jobs data showed the labor market continued to soften in November. Private consulting firm, Challenger, Gray & Christmas showed announced job cuts by U.S. employers in November topped 1 million year-to-date as corporate restructuring, artificial intelligence and tariffs culled the job rolls. Meanwhile, payrolls processing firm ADP reported the labor market slowdown intensified during the month as private companies cut 32K workers, showing small businesses hit the hardest. The two reports offset official weekly jobless claims data which showed 191K workers filing for unemployment. This was 27K fewer losses from the prior period. While the reports cumulatively show a softening in the labor market, they were not weak enough to spark concern by equity markets, who were elated that the softening would likely warrant an “insurance” cut by the Fed next week.
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Tariffs and economic uncertainty continued to weigh on the services and manufacturing sectors. The ISM Services Index increased to 52.6 from 52.4 in October. Numbers above 50 indicate expansion while those below signal contraction. Despite the higher reading, businesses remained cautious around hiring and investing due to lingering “tariff uncertainty.” Meanwhile, the manufacturing sector remained in recession, shrinking for the 9th month in a row. In November, the ISM Manufacturing Index fell to 48.2 from 48.7 in the prior month.
- After a long delay due to the federal shutdown, the Fed’s preferred inflation gauge – the Personal Consumption Expenditures (PCE) report – showed inflation remained relatively stable in September. On a month-to-month basis, core PCE was up 0.20%. year-over-year (YOY), Core PCE slipped to 2.80% which was lower than August’s 2.90% annual rate. Meanwhile personal income increased 0.4% for the month, while spending grew 0.30% for the period. With tariffs still not materially accelerating inflation and with the job market softening, markets now place an 87% chance of a rate cut at the Fed’s December meeting. This is an about face – yet again – with the market having placed those odds at about 30% just a few weeks ago.
Stocks Ready for a Year End Sleigh Ride
Holiday spirit was in full swing on Wall Street this week, fueled by a combination of benign inflation, mixed ISM reports, softening jobs data and the implication those items have on supporting a year-end rate cut when the Fed meets on December 10th. After waning during the government shutdown in late November, consumer sentiment has managed to tick higher in recent weeks, rising 4.5% since its last measure. Nowhere was the improved attitude more apparent than in retail sales. This year’s Black Friday weekend managed to draw out 202.9 million shoppers – the largest turnout since 2017 – while Cyber Monday rang up over $14.25 billion in sales according to Adobe Analytics, up 7.10% YOY. The tick up in confidence and spending comes at just the right time with markets having wobbled over AI concerns in recent weeks.
The renewed optimism – while welcomed – is almost entirely driven by shifting expectations for a December rate cut. Markets had initially placed a 72% chance of a December cut during the early part of November but by November 20th increasingly mixed data resulted in those odds falling to approximately 30% according to Polymarket. Equities markets slipped in response. This week’s data releases, while continuing to be very much mixed, managed to strike just the right chord in convincing markets that the Fed will now err on the side of caution to protect the labor market by voting for an “insurance” cut at the end of their final meeting of the year. As of Friday, investors are now wagering an 87% chance of a cut next Wednesday. As we mentioned a few weeks ago, a “surprise” cut was not at all out of the question based on Fed participants’ comments at the time and with data now flowing again with the government reopened, investors now appear more amenable to believing Santa really is real and they’re actually going to get their rally. It should be noted that December has historically been a strong month for equities in general. Its average gain is generally around 1%, ranking as the third-best month of the year since 1950 according to the Stock Trader’s Almanac. If history is any guide, the combination of seasonal factors and an additional rate cut are likely to reward investors, padding their yearly gains.
The Week Ahead
A light week for economic news will leave markets focused on the Federal Reserve’s last policy meeting of the year.
Year-End Financial Planning Reminders for 2025
As the year winds down and the holidays draw near, many of us naturally begin reflecting on what we accomplished—and what we still want to tackle financially before turning the page to 2026. Even though the calendar is running short, there is still time to make meaningful adjustments that can strengthen your financial footing, reduce taxes, and ensure your long-term plans stay on track.
Below is a list of year-end planning reminders, complete with this year’s contribution limits, deadlines, and several new opportunities to consider as we look to the new year. These suggestions are by no means one-size-fits-all, so please feel free to reach out to us and we can help tailor a plan for your specific situation.
1. Revisit Your Retirement Contributions
As the year closes, check whether you’ve taken full advantage of your workplace retirement account. For 2025, employees can save up to $23,500 (plan design dependent), plus a $7,500 catch-up if age 50 or older. Individuals aged 60–63 may qualify for an increased “super” catch-up depending on plan adoption.
Business owners may consider SEP IRAs or Solo 401(k)s, which allow contributions up to $70,000 in 2025. Even increasing your contribution for the final pay periods can make a big difference in what you pay to Uncle Sam.
2. Don’t Miss Your Required Minimum Distribution (RMD)
If you are 73 or older, you may need to take an RMD before December 31. Missing the distribution can lead to significant penalties you’ll want to avoid. Rest assured that for those of you who may not have already taken the minimum, we are in the process of actively reaching out to our clients to be sure these distributions get made. Given that RMDs span numerous types of accounts and the total RMD can be take pro-rata per account or in full from just a single account, it is important that we touch base so we can be sure to avoid under – or over – distributing from your account(s) held with our firm.
If you do not need your RMD for living expenses, you might consider simply transferring the net amount into any taxable account you might have with us or perhaps a Qualified Charitable Distribution (QCD) may be appropriate. IRA owners age 70½+ can send up to $108,000 directly to charity in 2025, satisfying some or all of their RMD without increasing your taxable income – making this a win for the charity and you should you be so inclined.
3. Review Capital Gains and Losses
Before year-end, scan your taxable accounts for opportunities to offset gains with losses. We do this automatically for any accounts that we actively manage on your behalf. If you realized gains from real estate, business interests, or investments outside Probity-managed accounts, please let us know so we can coordinate tax-loss strategies.
4. Use Your Annual Gift Tax Exclusion
For 2025, you may give up to $19,000 per recipient without using your lifetime exemption. In addition to this, you can transfer even greater amounts by paying tuition or medical expenses directly to the provider on behalf of a recipient, which is also tax-free and does not count against the exclusion.
5. Complete Charitable Giving
Big changes are coming to the deductibility of charitable gifts in 2026 so you may consider accelerating any gifts to 2025. Charitable gifts must be completed by December 31 to be deductible for this tax year. Donating appreciated stock can help avoid capital gains taxes while still providing a deduction. Some families may also benefit from “bunching” multiple years’ gifts into 2025 to exceed the standard deduction.
6. Maximize Your Health Savings Account (HSA)
If you have a high-deductible health plan, HSA limits for 2025 allow contributions of $4,300 for individuals and $8,550 for families, plus a $1,000 catch-up if age 55+. HSAs offer tax-free contributions, growth, and withdrawals for medical expenses.
7. Spend Flexible Spending Account (FSA) Balances
Most FSAs require unused funds to be spent by year-end. Some plans offer rollover allowances or grace periods, so check your employer’s rules and schedule any eligible expenses now but know that many plans are structured as “use it or lose it”.
8. Make 529 College Savings Contributions
The 2025 exclusion allows contributions of up to $19,000 per beneficiary, and many states provide tax incentives for contributions made by December 31. Certain unused 529 funds may now be rolled into a Roth IRA for the beneficiary (subject to rules and limits).
9. Discuss Legacy Goals with Family
The holiday season offers a rare chance to gather as a family. This may be a good time to share your financial values, estate intentions, and long-term plans. Clear communication today can reduce confusion and conflict later.
10. Review Your Estate Planning Documents
Wills, trusts, powers of attorney, and healthcare directives should be reviewed every few years. Life changes, such as births, deaths, and relocations, may require updates to ensure your intentions are properly reflected.
11. Confirm Beneficiary Designations
Retirement accounts and life insurance benefits pass directly to named beneficiaries. Review both primary and contingent beneficiaries to ensure they match your current wishes.
12. Rebuild or Strengthen Your Emergency Fund
Aim for 6–9 months of essential expenses in an accessible account. Year-end bonuses or surplus cash flow can help rebuild reserves.
13. Reevaluate Your Investment Strategy
A new year brings a fresh opportunity to check in on your investment goals, risk tolerance, and time horizon. Market dynamics and tax laws have shifted again this year—taking stock of where you are with respect to your retirement goals can help guide the adjustments you should make today to support better outcomes tomorrow.
14. Organize Key Documents and Digital Information
Ensure loved ones know where to find important documents, estate plans, account information, passwords, digital assets, and property records. A secure digital vault or organized system can save significant headaches later.
15. Stay Aware of New Planning Opportunities
New or upcoming programs may influence planning:
Trump Accounts for Children (expected 2026): A federal savings program offering a $1,000 seed contribution for eligible children born 2025–2028. Accounts are expected to open in 2026.
401(k)-Linked Emergency Savings (PLESAs): Some employers now offer emergency savings accounts connected to retirement plans.
Roth Catch-Up Requirements (2026 implementation): Beginning in 2026, high-earning workers aged 50+ must make catch-up contributions as Roth contributions.
16. Meet with Your Advisor
Inevitably the end of a year puts us all in a reflective mood. A year-end review helps ensure all parts of your financial plan—investments, taxes, retirement, and estate planning— are effectively working together, and we encourage you to call us at (214) 891-8131 with any questions you might have. We thank you for allowing us to be your trusted advisor and look forward to a prosperous 2026.
Happy holidays from the entire staff of Probity Advisors