CWS Market Review – December 2, 2025

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Yesterday, the stock market broke its five-day winning streak but today, the market resumed its winning ways. The S&P 500 closed higher by 0.25%. The index isn’t far from a new all-time high. The Nasdaq Composite was up today by 0.59%. High Beta was up over 1%.

It’s an odd market when Apple, Walmart and Applied Materials all made new 52-week highs while Procter & Gamble and General Mills made new lows.

The top-performing Dow stock YTD is…Caterpillar! If you had given me 29 guesses, I still wouldn’t have gotten it.

Shares of Boeing were especially strong today. The company expects deliveries of their 737 and 787 jets to be up next year. The stock was up over 10% today. Interestingly, Boeing is a Dow component. If the Dow was weighted by market cap, then Boeing would have almost no impact.

The four largest Dow stocks (Amazon, Apple, Microsoft and Nvidia) have a combined market value of $15 trillion. That’s nearly 100 times larger than Boeing. Even a giant multinational appears as but a speck when compared with the tech giants.

Trump Appears to Favor Hassett for Fed Chair

This week, President Trump said that he already knows who he will appoint as the next Chairman of the Federal Reserve. He said he may unveil his pick before Christmas even though Jerome Powell’s term doesn’t end until May. Wall Street broadly assumes that choice to be Kevin Hassett who is currently director of the National Economic Council. For his part, Hassett has said that he’d be happy to serve.

Several years ago, I had a brief email exchange with Hassett. I noted some major flaws in his Dow 36,000 theory. I recall the exchange being cordial despite covering our disagreements.

This theory was from a book he and James Glassman wrote in 1999 claiming that stocks were wildly underpriced and that stocks should, in fact, be four times more expensive than they currently were. As is often the case, the book hit the bookshelves just weeks before the stock market’s top. I wonder if that altered his view.

The Dow eventually made it to 36,000, although it took its time.

In 1999, I was told that my critique was going to run in a major financial publication. Alas, that never came to pass, but I’ve held onto it. Here’s a sample of what I wrote all those years ago. (Warning: it gets mathy.)

First, Glassman and Hassett err in their selection of an appropriate measure of risk for their purpose. The free market prices risk, just like it prices everything else. That price is included in the price of stocks. In order to measure risk, Glassman and Hassett should use a measurement that isolates risk from the price of stocks. They don’t do this. Instead, they compare the standard deviation of stock returns to the standard deviation of risk-free-bond returns. That’s a different animal. Sure enough, with progressively longer holding periods, stock returns’ standard deviations gradually get smaller. Upon realizing that at long term, the standard deviation of stock returns is the same as bond returns’, actually slightly less, Glassman and Hassett conclude that stocks are “no more risky” than Treasury bonds.

That’s a faulty conclusion. Even if the standard deviations are the same size, it doesn’t say anything about the risk that they’re looking for. The point is that risk has still never been isolated: It’s inside those returns no matter how long-term you go. The variability of risk’s part of all these returns may be diminishing as well. That can happen even if risk stays exactly the same size. With Glassman and Hassett’s method, we have no idea how big the risk inherent in stock ownership is.

You can read the whole thing here. I’ll be curious to see if any Dow 36,000 Theory questions will make it into Hassett’s confirmation hearings. Since the book came out, Hassett’s career has gone further, but I still think I had the better argument. As for the Dow, it didn’t break 36,000 for another 22 years.

Ninth Contraction in a Row for ISM

We won’t get the key economic reports until later this month. Yesterday, we got the ISM Manufacturing Report for November. This report usually comes out on the first business day of each month. The report showed that for the ninth month in a row, the U.S. factory sector contracted.

The ISM fell from 48.7 in October to 48.2 for November. Any number below 50 means that manufacturing is getting smaller. The red flag range is usually below 45. Manufacturing makes up about 10% of the U.S. economy.

I often hear people say that America doesn’t make anything anymore. That’s not true. In reality, America is a manufacturing powerhouse, but the difference is that a lot fewer people do it.

The problem lately is that the manufacturing sector has also had to deal with trade issues. Earlier this year, President Trump instituted a 25% tariff on vehicles and auto parts, but he’s added several side deals so some countries can get around the tariffs. Another 25% tariff came into effect last month on heavy-duty trucks and parts.

From Reuters: “Only four industries in the ISM survey, including computer and electronic products, and machinery reported growth. Among the industries that contracted were wood products, transportation equipment and textile mills.”

The U.S. economy is still in a precarious spot. The Federal Reserve meets again next week, and it’s almost certain that the Fed will cut rates again by 0.25%. I think that’s the smart move. After that, however, the outlook is unclear. Several Fed members have gone on record as being skittish about more rate cuts.

After next week’s meeting, the Fed won’t meet again until late January, and I’m doubtful the Fed will follow up with another rate cut. There will probably be one or two rate cuts next year, but we’ll need to see more economic data first.

As a very general rule, the Fed tends to closely follow the year on the two-year Treasury. This chart below shows that the two rates are nearly waltzing partners. Notice how the red line moves a tad earlier than the blue line.

In this case, the red line, meaning the market’s line, is a bit below the Fed’s rate. That suggests that the market expects lower rates in the near future.

Bitcoin has been plunging lately. At one point, the crypto currency dropped below $85,000. For some context, two months ago, it was over $125,000. This could be related to fears of an AI bubble.

I’ll caution you that Bitcoin is very volatile, and it’s seen several drops like this before. In fact, it’s seen even larger drops than this. Still, this could mean that investors are growing tired of risky assets and they’re looking for comfort in more conservative areas. Bitcoin rallied nicely today.

That’s all for now. The Federal Reserve is meeting again next week. The policy statement will be out on Wednesday at 2 pm ET. I’ll have more for you in the next issue of CWS Market Review.

– Eddy

Posted by on December 2nd, 2025 at 8:17 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.