Here's the Deal

Last week’s data confirmed what we've been tracking for months: inflation is still grinding higher, the labor market is softening beneath the surface, and the Fed is running out of room to pretend otherwise. September’s delayed PCE report didn’t shock anyone, but the trend is unmistakable. Tariff-driven inflation continues to push prices higher, even as job creation slows and recessionary signals build.

Meanwhile, the White House is making a hard pivot on affordability messaging at the exact moment Americans feel the squeeze most. And with a rate cut all but priced in for Wednesday, markets are setting up for a classic late-year push if key levels hold.

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Inflation Kept Climbing in September

This week we finally received September's PCE data, delayed by the government shutdown. The numbers came in largely as expected, but the trend remains concerning:

The year-over-year headline PCE ticked up from 2.7% to 2.8%, continuing the upward trend we've seen since April's "Liberation Day" tariff announcement. October's reading is due December 19th.

Trump’s Affordability Pivot

President Trump’s aides are pressing him to shift his messaging on affordability. His response this week was striking: during a cabinet meeting, he dismissed the entire concept, saying: “There is this fake narrative Democrats talk about. Affordability. They just say the word. It doesn’t mean anything to anybody,” “The word ‘affordability’ is a con job by the Democrats.”

This represents a remarkable pivot. During the campaign, affordability was central to his economic pitch:

As a candidate, he emphasized affordability and vowed to fix "Joe Biden's inflation crisis." As president, he increasingly dismisses it as a politicized talking point. Even as prices continue rising under tariff pressure. The disconnect between these positions is beyond absurd. Especially since this current wave of “Trumpflation” is entirely of his own making.

Employment Shows Continued Softening

November's ADP Employment Change reinforced what we've been tracking: the economy is in the early stages of shedding more jobs than it's creating. This is a hallmark of a credit cycle transitioning from late-slowdown into early-recession territory. Exactly what The Economy Tracker has been signaling.

Fed Decision Wednesday

The good news about the deteriorating employment picture is that it gives the Fed enough cover to continue cutting rates this week. Markets are pricing in another 25bps cut on Wednesday to bring the Fed Funds rate down to 3.50% - 3.75% from it’s current rate of 3.75% - 4.0%:

Followed by a pause in January.

If they hold rates steady instead on Wednesday, expect stocks to sell off as a cut is already baked into expectations. But at this point, that appears to be an outlier scenario.

Upcoming Data (Delayed Reports Filtering Through)

• Tuesday, Dec 9: JOLTS data for both September and October

• Dec 18: November CPI

• Dec 23: Q3 GDP initial estimate

Markets:

We've had a nice run off the lows, and I'm now watching for a possible retracement in markets to about $675ish in $SPY ( ▼ 0.47% ) to load back up into the end of the year. Especially with the January Effect kicking in this Wednesday, and the Santa Rally which begins this year on Dec 24th. Setting up another possible surge in markets into early next year.

$SPY ( ▼ 0.47% ) S&P 500

That said, I'm not thrilled about the broadening formation we've found ourselves in (the thicker black solid lines on the chart). This pattern often signals a topping process, so it's worth keeping an eye on. Though it hasn't completely spilled over into the weekly charts yet.

Here's the interesting part: we've seen this movie before on shorter timeframes. Both the 30-minute and 4-hour charts developed the same broadening pattern, eventually surged higher out of it, then rolled back over to the lows. Which in turn triggered the next longer timeframe broadening formation until it reached the daily chart, which is where we appear to be now.

If the daily follows the same script as the 30-minute and 4-hour charts, here's what I'd expect: SPY comes up just short of the $689.70 high, retraces back to 675ish, then surges to new highs around 700 or 715. Should the price action on the daily chart follow that of the 30min and 4hr from the past few weeks, then look for SPY to fall back below $650.85 from the highs. This would then trigger a possible broadening formation on the weekly chart, setting up for a volatile beginning to 2026.

$QQQ ( ▼ 0.54% ) Nasdaq:

$DIA ( ▼ 0.66% ) Dow Jones Industrial Average:

$IWM ( ▲ 0.22% ) Russell 2000 (Small Caps):

Once again, Bitcoin $BTC.X ( ▲ 0.36% ) was a dog last week while markets marched back toward the highs. Even if Bitcoin can also get back to highs, which is not the bet I’m making here, this is major change of character for markets as they will have led Bitcoin rather than vice versa which has been the case. When a major change like this happens in markets, it is best to be aware of it at the very least.

WTF of the Week:

I guess tariffs aren’t paid by exporting countries after-all.

Quote of the Week:

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