Here's the Deal

With delayed government data finally trickling out after the shutdown, we're getting a clearer, though also somewhat more complicated, picture of where the economy stands.

Ultimately, CPI offered a look at inflation that looks too good to be true (and may be), the labor market continues to show widening cracks, and the Fed is pivoting back toward liquidity. Let's dig in.

Inflation: Good News With an Asterisk

We finally got some welcome news on the inflation front. For the first time since the Liberation Day tariff announcement, CPI came in lower than the prior month on a year-over-year basis.

You love to see it. The drop seemed almost too good to be true. Unfortunately, when you look closer under the hood, it was.

The Shelter Problem

Because there was no October CPI report due to the government shutdown, the Bureau of Labor Statistics relied heavily on “carry‑forward” imputation for October shelter, essentially assuming no price change where it had no observations.

As a result, the published November CPI embeds an implicit 0% October move for rents and OER (Owner’s Equivalent Rent), then only shows a small two‑month change from September to November (about 0.2% for shelter over that span).

That's a big deal. Shelter is the single largest component of CPI, and rent doesn't just pause because the government stops counting.

Some analysts point to alternative indexes (like Penn State's) showing rent growth near zero, and that may well be accurate. But here's the key point: the BLS doesn't use those alternative measures. So while interesting for context, they're irrelevant to interpreting the official reading.

Why This Matters for the Next 12 Months

That artificially low October reading creates a timing distortion that will ripple through the data:

Near-term: The "zero" shelter month makes current year-over-year readings look cooler than reality.

Medium-term: Some of that missing October increase will likely show up in later months as new leases filter into the index, creating "catch-up" prints that make early 2026 readings look hotter than they may be in reality.

The 0% shelter month makes the current YoY CPI and core CPI look too low relative to underlying inflation, and then modestly too high during any later payback months. The main risk is mis‑timing the perceived turning point in housing and overall inflation.​

Every year-over-year CPI reading from now through October 2026 is being measured against an index path that's now too low. The bias only disappears when October 2025 rolls out of the 12-month comparison window.

Because of this, it is best to treat November's report, and the next few prints as statistically less reliable than usual.

The Bigger Issue

There's a legitimate argument that BLS methodology for rent inflation needs updating as the lag effect is too long. I agree. But you make that change before you use it, not in the middle of a politically charged moment and certainly not without prior acknowledgment. Doing so strains credulity and damages data integrity.

Some will say the integrity was already compromised. Look, U.S. government data isn't perfect, but it remains the most comprehensive and transparent economic data the world has ever produced. It also now gives everyone the ability to track it themselves. That transparency is foundational to an ever improving economy which benefits the most amount of people. Dismissing imperfect-but-improving data in favor of unproven alternatives simply because it's politically inconvenient is foolish and extremely short-sighted. If you like the result of it now, you will hate it when a president with a different letter by their name is in office. That is one major reason why consistency matters.

At the end of the day, November's CPI print looks exactly like the kind of data manipulation this administration claimed to oppose and used as a reason to fire the last head of the BLS earlier this year. That irony isn't lost.

And here's some additional irony: if November's actual inflation was lower than September's, this methodology choice may have obscured a genuine turning point. We might have been able to call a new downtrend sooner. Instead, it’s very possible that we'll need to wait longer and see if subsequent months confirm any real improvement.

Creating yet another possible Wiley Coyote moment for President Trump and his economic team.

The Jobs Market Continues to Weaken

The JOLTS report offered some stability, as posted job openings continue to level out around pre-COVID highs.

But that was overshadowed by another anemic payrolls report: just 64,000 jobs created in November, following October's loss of 105,000.

The pattern is clear:

• Payroll growth has weakened throughout 2025

  

• Job cuts have accelerated over the same period

  

• The quits rate continues falling as workers grow more hesitant to leave their current positions due to fewer options being available

  

• Unemployment has risen to 4.6%, up from 4.4% in September

  

This prompted another easily disprovable claim from the President about the economy.

Economist Claudia Sahm, creator of the recession indicator that bears her name, addressed it directly on X with the actual data:

The broader point: This isn't the 1980s or 90s anymore. Information and tools that didn't exist when these politicians built their careers in the business world are now at everyone's fingertips. Erroneous claims get fact-checked in real time. Good leadership means understanding this environment and offering explanations that can withstand scrutiny for longer than ten minutes

Frankly, I expected better from the Trump administration than we experienced from the Biden administration which was also woefully behind the times on this front. Unfortunately, that has not been the case.

Understanding the information landscape and adapting to it is a core business competency practice. Whereas distorting information to drum up support from the masses who do not pay close attention to these matters is the hallmark of politicians and BS political spin.

Rate Cuts and Fresh Liquidity

The Fed cut the federal funds rate by 25 basis points as expected week before last. More notably, they announced that they would resume buying Treasury bonds on December 12th. The result of which effectively adds liquidity back into markets after years of shrinking their balance sheet.

This is worth paying attention to. A return to adding liquidity is consistent with late-stage economic cycles. Eventually, it helps lay the groundwork for the next expansion. But in the near term, it's typically deployed to cushion a slowdown and/or approaching recession.

To be clear: liquidity isn't the be-all and end-all for understanding the economy as many think it is. It's one piece of a much larger equation. The good news is it will eventually help an economy that's now clearly cooling. The risk is that too much liquidity too fast, plus excessively low interest rates, creates another bout of excessive inflation. This could occur in either this current credit cycle if it is extended and continues, or in the next one. If it hits next cycle, that could mean a shorter credit cycle than the 80-100 year average of ~6 years, and much shorter than what we've grown accustomed to in recent decades.

Definitely something to be aware of and keep in mind in the coming months and years. Especially if you operate and or own a business.

3Q GDP and Oct PCE to be Released this Week

October’s PCE and Core PCE inflation rates will be released on Monday morning.

This GDP release is nearly two months late, originally scheduled for October 30th, thanks to the longest government shutdown on record.

Keep in mind this is just the initial estimate, with a revision to follow on January 22nd (replaces the typical third estimate) as more data filters in.

Markets:

A couple of weeks ago I gave a scenario that I was watching, and it has turned out to be pretty reliable so far.

Prior to that, I sent out the following post to let people know I thought the lows were in:

After the surge back toward all-time highs, I let the trading group know I'd be selling and scaling back short-term positions as sentiment had swung back to very bullish, and we were pressing up against resistance close to the high.

Here’s how the price action played out after I sent both of those posts. The arrows mark the date and time of each one.

Not bad

Now, you know the drill: past performance doesn't guarantee future results. But I share this for a reason: there's a lot of noise out there. Most financial content creators are not real traders or investors and recycle shallow analysis. To be fair, the talking heads on Fox Business and CNBC are often worse. When things get volatile, these are the people who get confused the most and end up missing the plot entirely. Often because they make the fatal mistake of believing their political beliefs have any merit when it comes to understanding markets and the economy.

I point this out because there is a time to be humble, but there's also a time to say: “Hey! Pay attention. Things are about to get real and the people with the most eyes and ears on them barely have a clue.”

Welcome to that time. Let’s talk about some things that actually do matter right now.

The Santa Claus Rally — What It Actually Is and When it Occurs

Most people, even active traders, get this wrong.

The Santa Claus Rally isn't just "stocks go up in December." It's a specific, measurable event: the last five trading days of the year plus the first two trading days of the new year. Seven sessions total. This year it begins at the opening bell on December 24th and runs through to the closing bell on January 5th.

Why does that matter? Yale Hirsch, founder of the Stock Trader's Almanac, put it simply: "If Santa Claus should fail to call, Bears may come to Broad and Wall."

According to the Stock Trader's Almanac, this seven-day window has averaged a 1.3% return since 1969. When Santa shows up, it tends to signal a healthy market heading into the new year.

History backs this up. Two other notable years when Santa failed to arrive: 2000 and 2008. He also skipped last year, though the broader January Trifecta went 2-for-3 as both the January Barometer and the First Five Days finished positive, which softened the signal.

What I'm Watching Now

Near-term, I'm still looking for SPY to push toward 700 or 715.

$SPY ( ▲ 0.44% ) S&P 500

From there, I'll be watching closely to position for another potential leg down below the $650.85 level. Possibly to 645 or 630. A move like that would confirm what I've been tracking: a broadening formation that started on the 30-minute and 4-hour charts will have spilled over onto the daily charts. If we get that lower low, it adds further evidence of a weekly broadening formation developing as well.

You want to know about this because Broadening Formations (aka Megaphone Patterns) appear much more frequently at tops than at bottoms.

With that being said, about 60% of the time they represent a noisy and volatile late peak rather than an immediate top and break to the upside. But then again markets are in uptrend the vast majority of the time. So the trick is to know when the probabilities are higher for it to be a topping pattern. And The Economy Tracker tells us that this is one of those times where a Broadening Formation is at a higher risk of being a topping pattern.

$QQQ ( ▲ 1.3% ) Nasdaq:

$DIA ( ▲ 0.35% ) Dow Jones Industrial Average:

$IWM ( ▲ 0.84% ) Russell 2000 (Small Caps):

Bitcoin $BTC.X ( ▲ 4.11% ) continues to struggle, but is firming up at these lower levels.

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