The “Santa Rally” has proved disappointing for the S&P 500 ETF (SPY) and the Nasdaq 100 ETF (QQQ) so far, with both ETFs trading slightly lower since the seasonal pattern began on December 24.
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The Fed published the minutes from its December Federal Open Market Committee (FOMC) meeting on Tuesday, highlighting a divide in opinion surrounding inflation and the future rate path among policymakers. The meeting resulted in a 9-3 vote to cut rates by 25 bps, although some members who voted in favor noted their decision was “finely balanced or that they could have supported keeping the target range unchanged.” The three dissenting votes marked the highest number since 2019.
While a number of policymakers see signs that inflationary and labor market pressures are cooling, others remain uneasy that inflation has yet to return to the 2% target in 2025. A few officials argued that the December rate cut was “not justified,” citing data that failed to show further weakness in the labor market.
Following the release of the minutes, the odds of a 25 bps rate cut at the January 28, 2026 FOMC meeting on CME’s FedWatch tool fell to 14.9% from 16.6% yesterday and 15.5% a week ago.
Earlier this week, President Trump threatened legal action against Fed Chair Jerome Powell over the central bank’s billion-dollar renovation of its Washington, D.C., headquarters. “We’re thinking about bringing a suit against Powell for incompetence,” Trump said during a press conference with Israeli Prime Minister Benjamin Netanyahu. “It’s gross incompetence against Powell. And it was his baby.” Powell’s term as Chair is set to end in May 2026, although his term as a Governor lasts until January 2028.
Meanwhile, housing affordability is starting to show signs of a recovery. For the 12 months through October, the S&P Cotality Case-Shiller National Home Price Index increased 1.4%, slightly higher than 1.3% in September but still reflecting modest growth. On Monday, the National Association of Realtors (NAR) said that pending home sales rose by 3.3% in November to their highest level since February 2023. NAR Chief Economist Lawrence Yun attributed the growth to higher levels of inventory and wage growth rising faster than home prices.
The S&P 500 (SPX) closed with a 0.14% loss, while the Nasdaq 100 (NDX) fell by 0.25%.
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