EB Daily Market Report - Wednesday, December 17, 2025
Executive Summary
- Futures were down overnight, but reversed this morning and our major indices gapped higher at the opening bell
- The early strength didn't last, however, and all of our major indices are lower
- Semiconductors ($DJUSSC, -3.58%), barring a last 30-minute reversal, are breaking down beneath the lows set in October and November - bearish
- Technology (XLK, -1.96%) is again leading the downside, making it very difficult for the overall indices, despite 4 sectors being higher
- Energy (XLE, +2.10%) is leading the market as crude oil ($WTIC, +2.08%) rebounds above $56 per barrel
- Commodities are mostly higher as silver ($SILVER, +5.66%) jumps significantly
- Risk assets are overwhelmingly weak, with cryptocurrencies dropping; etherium ($ETHUSD, -4.47%) is having a particularly rough session
- The November CPI data will be released tomorrow morning
- Micron Technology (MU, -2.64%) looks to give semiconductors a boost as it reports its latest quarterly results after the bell
Market Outlook
Tomorrow morning, we'll get the latest CPI report, which will likely show that inflation is not a problem. Currently, expectations are that November headline CPI will remain unchanged at +0.3% and that Core CPI will tick slightly higher from +0.2% to +0.3%. That won't do much to change the long-term inflation picture, as shown below:
I believe the stock market is more worried about a recession than it is inflation. However, if inflation prints a number above expectations, it'll keep many on the Fed on the hawkish side and unwilling to consider lower rates to stimulate the economy.
Sectors/Industries
Let me explain why I'm more worried about a recession. I tend to look to a number of areas to try to figure out the market's "story." First, I see that growth (IWF) has moved to a 3-month low relative to value (IWD). The two primary reasons for the IWF:IWD ratio moving significantly lower would be economic weakness or inflation. Economic weakness brings down earnings and future projected earnings. Inflation simply makes future earnings less valuable.
In order to determine which condition is likely more culpable, I look to the bond market. In a deteriorating economic environment, investors will buy bonds as they rotate away from stocks. The buying of bonds sends yields lower, which, in turn, will help to spark the economy somewhere down the road. In an inflationary environment, investors do not want to buy or hold bonds, because inflation eats away at yields. Investors will demand higher yields and sell bonds until yields are high enough to offset the risks of inflation.
As I look to the 10-year treasury yield, I see a bond environment where there appear to be many more buyers than sellers, suggesting that the deteriorating economy is the much bigger problem. The 10-year treasury yield ($TNX) has moved slightly higher of late, but the overall trend has been down for the past 2+ years:
The green-shaded area is where I believe the TNX is heading over the next year or two. It may take a few more solid monthly Core CPI readings to send the fed funds rate measurably lower. Lower rates and an improving economy will combine to eventually send our major indices to new record highs. But the current performance of growth stocks is suggesting we may need to have some patience to get there as we deal with a recession or at least the fears of one.
ChartLists and Trading Strategies
I would continue to seek out stocks in areas away from growth. We could see rebounds in those stocks from time to time, especially if we get any good news on the inflation or interest rate front. Overall, however, I'm expecting to see further rotation into value- and defensive-oriented stocks, before we see any significant strength in large cap growth.
In the meantime, scanning our ChartLists for stocks that hit key support, whether it be a rising 20-day EMA or possibly a gap support from earnings, still makes good sense. Just keep stops in play and understand that whipsaw action could result in more quick losses and stops being triggered.
Here's a stock from our Strong Earnings ChartList (SECL) and Raised Guidance ChartList (RGCL) that we also featured this week in our EB Digest:
The top of gap support tends to hold on these pullbacks, especially after gapping up and then trading much, much higher on exceptional volume. There's still a bit more downside possible to gap support, but there's a ton of upside to the recent price high.
Upcoming Earnings
We are now waiting until Q4 earnings season kicks off in mid-January before publishing our Upcoming Earnings ChartLists and Upcoming Earnings Relative Strength ChartList.
Economic Reports
None
Happy trading!
Tom