Dear Santa, give us your rally !

December 1st, 2025

Thoughts of the Week

November disappointed, despite the long-standing very positive seasonal pattern. But as we had mentioned in our newsletter at the dawn of this month, nothing has worked according to seasonal patterns this year, which had made us put a question mark on a potential November mini-rally, back then. If the patterns return to normal however, December should produce very decent returns. This typically positive finish to the year has given birth to the "Santa-rally" cliché which our entourage in the investment community often quotes.

There are reasons to be (statistically) optimistic, as the last month of the year has started to roll. If we look at the data of the last thirty-five years and we focus on the years that the S&P500 registered a full-year performance of more than 10%, December had almost always been a very solid month. There were only two exceptions in this statistical observation, with one of them being last year ! How probable is it to have two negative Decembers in a row ? We will know in about 30 days, for sure.

Flows also appear to be a positive catalyst at this juncture. The algorithmic trend-following funds have significantly reduced exposure during the recent correction, as volatility spiked and hence there is room now to rebuild positions. The return of the VIX (volatility index) closer to 16 again guarantees that risk-parity funds will seek to increase equity exposure again. Then, according to available data retail flows continued to be strong during the correction, as they are still buying the dip. Of course, we should note that strong retail activity can also be a contrarian factor, but for the moment they continue to provide sizeable fuel to the rally.

Last but not least, market breadth has been improving. As we show in the chart of the week, Nasdaq's weakness did not spill into the rest of the market, which is a very positive sign. In the US, in November almost all sectors were positive, with Healthcare up almost 10%, while Consumer Staples (such as food & beverage, household products etc.) were up by about 4%, as Technology registered a 4% drop in the same period. The case for diversified portfolios was again very clear in this tumultuous month.

What caught our attention

Nvidia's monopoly was shaken, by reports about Alphabet's new AI capabilities. Adding to the recent positive earnings report and comments about the super-power of its updated Gemini AI platform, there were indications that Meta Platforms is going to switch some of its chip purchases away from Nvidia to Alphabet by 2027. Nvidia's almost perfect monopoly is a potential risk as 40-50% of its total revenues come from a handful of companies (Meta, Amazon, Google and Microsoft) who they don't like this dependency, especially now that equally adept suppliers are coming into the market. After the initial "buy-everything-you-can-from-the-only-supplier-at-any-price" we are entering the phase where companies start caring about costs and dependencies. And China has entered the AI "war" with a totally different strategy: namely, to offer AI capabilities in an open-platform mode and at a fraction of cost. Will AI be so commoditized that uber-ambitious business plans like OpenAI's will start looking ridiculous ? History with the Telecom industry and the internet has shown just that.

Consumer-related US macro data were on the weak side. The September Retail Sales came in at just 0.2% vs expectations for 0.4% Even more worrying was the Control Group sales number which feeds into the GDP calculation, and which was negative (-0.1%). It is getting clearer every month that the top income groups and those with investment portfolios (i.e. the wealth effect) are the only ones who keep spending, whereas the majority of the US consumer is seriously cutting back. At the same time, US Consumer Confidence fell to 88 in November vs expectations for 93, the lowest level since April when tariffs were announced.

The FED December rate cut probability has shot up to 80% again. The equity rebound was helped by the sudden spike in market pricing for the December rate cut, which could be decided next week (December 10th). The recent weak macro data, including a lackluster jobs report and some FED officials' interviews who support this move, caused the market to change again its consensus opinion. The ECB is also having its own last meeting of 2025 in two weeks time, where no change is expected.

Eurozone November inflation at country level was rather benign. French inflation came in at 0.8% vs expectations for 0.9% and while Spain reported 3%, vs expectations of 3.2%. Italy's inflation fell to 1.1%, also better than expectations. But Germany reported a a jump to 2.6%, vs expectations for 2.5%. Taking all this together and ahead of the Eurozone composite CPI publication on Tuesday, the preliminary reports from these heavy-weight countries point to a potential small positive surprise. The expectations are for the headline number to remain at 2.1% and the core to have moved up to 2.5%.

Germany's lower house of parliament passed the 2026 budget, with net federal borrowing expected at 98bn€, up from about 82bn€ this year. What interests us more is that total defense spending is set to rise to 108bn€, the highest in decades. The Bundesrat, the upper house, must also ratify the budget by vote, which is expected to take place on December 19.

Markets reaction

Global equities rebounded strongly last week, as the buy-the-dip mentality which we had referenced a while ago is alive. Despite Nvidia's weakness, Nasdaq managed to post a 4% gain as investors continued to bid up the shares of Alphabet and Apple, while Microsoft also rebounded nicely from its 200-day moving average around 470$, which we had highlighted last week as a potential support level. European main indices also posted solid gains of about 3%, as the market returned to the electrification/data center plays and luxury continued outperforming. The defense sector has lost momentum and share prices have approached the levels last seen in May.

The bond market was strong, primarily in the US. The lackluster macro data drove traders and investors into the long-end of the curve, with the 10yr yield trading below 4%, approaching the levels of late October, when the market was betting on aggressive rate cuts. The German curve is a totally different story and yields have remained stuck in very tight ranges. The increased borrowing by the German government to fund its infrastructure and defense plans as well as the assumed increase in economic growth that this spending will bring has put a floor on yields (a cap on bond prices). We are still avoiding long duration bonds.

Precious metals spiked, with no real catalyst. Gold rose to 4200$ as Silver registered a new record high north of 57$. Platinum approached the 1700$ level, targeting the recent high of closer to 1800$, the highest in fifteen years.

The dollar weakened , as the market is focusing again on the FED meeting which is coming up. The EURUSD spiked to 1.1600 and the Swiss Franc was also weaker as the market is frontrunning the SNB which might be intervening in the market to avoid further strength in the currency. The official October data did not show any meaningful intervention however, but we are now entering December and these data are already outdated.

Chart of the week:

Technology masks the situation under the "hood".

The above, rather busy, chart shows in blue bars the daily market breadth, defined as the number of advancing stocks minus the declining stocks of the S&P500 for every trading day of November. The green line is how the S&P500 index fluctuated in the same period. We have highlighted three sub-periods for the following reasons. During the first two, we can see that the S&P500 was under pressure but the market breadth was really good as the stocks that were gaining those days minus the stocks that were falling was in some cases more than 150 (i.e. about 370 shares moving higher and only about 120 moving lower). The third highlighted period shows the exact opposite. During the rally of the index last week, the market breadth was small and even negative one day ! This means that on that day more stocks were falling than gaining, but the index was moving higher. All this is, of course, due to the fact that the top 10 stocks account for almost 40% of the index and the other 490 stocks account for the rest. An investment in the S&P500 these days is just a bet on these 10 companies. What is also evident from the chart is that an investor can still enjoy gains in his portfolio during periods that the S&P500 is moving down, as long as he is invested in other than Technology-related sectors and stocks.

Disclaimer

• The content of this document has been produced from publicly available information as well as from internal research and rigorous efforts have been made to verify the accuracy and reasonableness of the hypotheses used. Although unlikely, omissions or errors might however happen.

• The data included in this document are based on past performances and do not constitute an indicator or a guarantee of future performances. Performances are not constant over time and can be positive or negative.

• This document is intended for informational purposes only and should not be construed as an offer or solicitation for the purchase or sale of any financial instrument and it should not be considered as investment advice. The market valuations, views, and calculations contained herein are estimates only and are subject to change without notice. Any investment decision needs to be discussed with your advisor and cannot be based only on this document.

• This document is strictly confidential and should not be distributed further without the explicit consent of Kendra Securities House SA.

• Sources: Chart of the Week : KSH / FactSet,