💰 5 Fact Friday: Was The Santa Rally Stolen?

ECONOMY
1. The Grinch Who Stole The Santa Rally 🎅

Jerome Powell and the Fed just went full Grinch-mode, snatching the Santa Rally right out of Wall Street’s sleigh. The committee delivered a 0.25% rate cut but paired it with a forecast two sizes too small for holiday cheer.

Instead of the four cuts markets anticipated for 2025, the Fed now expects just two—and traders didn’t take kindly to the news. The 10-year Treasury yield shot up to 4.51%, and the U.S. dollar climbed to a two-year high.

In response, stock indices toppled like ornaments off a wobbly Christmas tree:

• S&P 500: Down 2.9%

• Nasdaq: Off 3.6%

• Dow Jones: Fell 2.6%, clinching its longest losing streak (10 days) since 1974

Why The Market Mood Swing?

For starters, it’s getting harder to justify any rate cuts.

Inflation remains hot at 2.8%, and the Fed doesn’t see it dropping to the 2% target until 2027. Meanwhile, the labor market is still strong, and GDP growth is punching above its weight at 3.2%—no small feat for an economy this size.

And then there’s the froth.

Speculative assets like Fartcoin (yes, really) have ballooned to a $1 billion market cap. This kind of behavior screams “market top” and often leads central banks to raise rates, not cut them.

Cue The Selloff

Yes, the reaction stung. But there’s a silver lining: this response suggests traders are recalibrating expectations to align with reality. Call it a healthy, if humbling, late-December detox.

The Fed’s message was loud and clear: no candy store vibes anytime soon. In a season full of sugar highs, maybe a dose of Grinch energy is exactly what we need to keep the party from spiraling out of control.

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STOCKS
2. The 50x Club: Handle With Care 🚩

As the new year approaches and life slows down, it’s the perfect time to reflect on our… portfolios!

One way to sanity check your holdings is by looking at forward price-to-earnings (P/E) ratios—one of the most popular metrics for valuing stocks. It’s calculated by dividing the stock’s current price by its forecasted earnings per share over the next 12 months.

The idea is simple: a stock’s value should ultimately align with how much profit (earnings) the company generates.

Currently, the S&P 500 trades at around 22x forward earnings, above its 5-year average of 20x and its 10-year average of 18x.

While high forward P/E ratios often signal optimism about growth, when they climb above 50, history suggests it’s time for a reality check. Most stocks struggle to sustain such elevated valuations.

• Mean Reversion is Common: Stocks with forward P/E ratios above 50 tend to underperform the market by about 12% over the next two years.

• Timing Matters: The turning point often comes 6-9 months after crossing this threshold.

• Winners Are Rare: Only 37% of these stocks outperform the market in the following two years.

Of course, context matters too. A high forward P/E ratio could reflect temporary earnings dips (e.g., Boeing at 822x) or massive growth expectations (think Palantir at 152x). Still, elevated multiples should always prompt a closer look.

To simplify your portfolio review, here’s a screen of major U.S. companies trading at forward P/E ratios above 50.

MARKETS
3. All About The Indices ⚖️

Indices aren’t static—they’re like VIP lists at a trendy club. Companies get added, others get bounced, and portfolios scramble to keep up.

On Monday, the latest round of changes hits:

• S&P 500 Adds: Apollo Global Management (APO) and Workday (WDAY)

• S&P 500 Removes: Qorvo (QRVO) and Amentum (AMTM)

• Nasdaq 100 Adds: MicroStrategy (MSTR), Palantir (PLTR), and Axon (AXON)

• Nasdaq 100 Removes: Illumina (ILMN), Super Micro Computer (SMCI), and Moderna (MRNA)

Why It Matters

Because index funds mimic these lists, any addition or removal triggers forced buying or selling. That means a big wave of passive money (think ETFs) flowing into newcomers and out of the unlucky losers. This can move share prices fast—often well before the changes are official, as speculators get ahead of the action.

Market Cap vs. Price Weighting

Most major indexes, like the S&P 500 and Nasdaq-100, are market cap-weighted. The larger the company’s total value, the greater its impact on the index.

The Dow Jones Industrial Average? Completely different story. It’s price-weighted, meaning a stock’s share price—not its overall size—determines its influence.

1. Berkshire Hathaway (BRK.A): With a six-figure share price, it’s too expensive for the Dow—it would dominate the entire index. However, BRK.B ($449.34) could theoretically join.

2. Goldman Sachs ($553.99): Has 2.2x more influence on the Dow than Apple ($249.74), even though Apple’s market cap is over 20x larger!

This structural quirk was on full display during the Dow’s 10-day losing streak. As revealed in this week’s Mystery Stock, one highly priced company dragged down the entire index.

ECONOMY
4. Fixing America’s Fiscal Fitness 🏋️

What if a debt-reduction plan didn’t just slow the bleeding but actually supercharged the economy, boosted wages, and made healthcare nearly universal—all without taking sides politically?

That’s the promise of a 13-part tax and spending reform package designed around tried-and-true public economics principles, with zero political horse-trading.

The Penn Wharton Budget Model (PWBM), famous for its data-crunching wizardry, just completed what they call “one of the most ambitious computational public finance experiments ever performed.” Spoiler: the results are wild.

Over 30 years, these reforms could:

• Shrink federal deficits by almost 40%

• Expand the value of productive assets by 31%

• Boost GDP by 21%

• Raise wages by 7%

• Lower health insurance premiums by 25%+

• Slash carbon emissions and hit green targets

How? By tackling the economy’s inefficiencies head-on:

• Flattening the tax code to reduce distortions

• Eliminating preferential rates for capital gains

• Ditching most itemized deductions (except charitable giving)

• Introducing mandatory Health Savings Accounts

• Raising the Social Security retirement age for younger workers

• Turning Medicare into a premium support system

• Doubling annual legal immigration—without subsidized healthcare

And here’s the kicker: this isn’t about trading away social safety nets for growth.

The reforms demonstrate you can have your fiscal cake and eat it too—cutting debt while raising living standards and expanding coverage. Worth a try, right?

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STOCKS
5. Guess That Stock 🕵️‍♂️

Think you’ve got the market chops to crack this one? Here are five clues about a Dow heavyweight that’s been making headlines lately:

1. Insuring more than 52 million people worldwide—90% of them in the U.S.—this company's premiums make up over 80% of its total revenue.

2. Despite being a $460B titan, this company competes in a tough industry. Unlike title insurance, which keeps 90% of premiums, this company must pay out at least 80-85% of what it collects—an Affordable Care Act mandate.

3. A bipartisan bill is aiming to clip its wings, targeting pharmacy-benefit managers. And a certain President-elect chimed in, vowing to “knock out the middleman.”

4. Once the most expensive stock in the Dow, its recent 20% slide has hit the index hard—thank price-weighted math for that.

5. With its recent drop, the stock is down 9% YTD. By comparison, the Dow is up 12% and the S&P 500 is up 24%.

Got a guess? Tap here to reveal the answer → 

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