The Week in Charts (12/24/25)

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The most important charts and themes in markets and investing…

1) A Confusing Labor Market

The labor market in the US has perhaps never been more confusing than it is today.

The latest nonfarm payroll report revealed that the US has added an average of 10k jobs per month over the last 4 months, the fewest since the 2020 recession.

The total number of jobs in the US increased by 0.6% over the past year, the slowest growth rate since March 2021. In the past 50 years, this type of weakness has preceded a recession and a spike in the Unemployment Rate 100% of the time.

But is this time different?

Many are arguing just that, pointing to lower immigration levels as the primary factor leading to the rapid decline in jobs. A Minneapolis Fed analysis found that half of the payroll decline can be attributed to reduced immigration.

But what about the other half?

There’s much debate about that as well, with Fed Chairman Jerome Powell saying recently that the US has been overstating jobs by up to 60k per month. So perhaps part of the decline is merely due to simply reflecting reality as opposed to previously using models that inflated the jobs numbers.

“It’s a complicated, unusual, and difficult situation, where the labor market is also under pressure, where job creation may actually be negative,” Powell said. 

Indeed, looking at the ADP private payroll numbers over the last 3 months (-4k/month), that appears to be the case.

Irrespective of your explanation for the decline in payrolls over the past year, this much is clear: the labor market is cooling. Evidence pointing to this fact includes:

• The US Unemployment Rate moving up to 4.6% in November, the highest level since September 2021.

• There are now 160k more Unemployed Persons than Job Openings in the US. Excluding the 2020 covid recession, this is the widest spread we’ve seen since 2017.

• The percentage of US workers quitting their jobs has moved down to 1.8%, the lowest since May 2020.

But a cooling labor market is not the same thing a recessionary labor market. In a cooling labor market companies slow their rates of hiring whereas in a recessionary labor market companies actively reduce their workforce due to declines in demand.

The best evidence for the cooling scenario continues to be Initial Jobless Claims, which are hovering near their lowest levels of the year. During a recession, we would expect this number to be rising as newly laid off workers would be filing for unemployment.

So when it comes to labor market weakness, this time is actually different – at least so far.

2) Distorted Inflation Data

The good news?

CPI moved down to 2.7% in November, well below consensus estimates for a 3.1% increase.

The bad news?

The data released by the BLS was missing many important numbers due to the government shutdown (including the entire October CPI level), leading many to question how reliable the 2.7% figure actually is.

The decline in Shelter CPI inflation from 3.6% YoY in September to 3.0% YoY in November was the main factor in bringing down overall CPI as Shelter represents over a third of the index. But the question is whether this is a true reading or a downward bias due to the shutdown with the BLS filling in 0% inflation for missing owners’ equivalent rent data. The BLS has yet to comment on this but if it’s a downward bias we could see the inflation rate move back up in the next report.

3) More Rate Cuts and the Return of QE

As expected, the Fed cut interest rates once again in December, bringing the Fed Funds Rate down to a new range of 3.50-3.75%.

Meanwhile, US CPI has risen by nearly 4% per year since the start of 2020 (2x their target inflation rate), meaning the Fed has completely abandoned their mandate to maintain price stability.

And after a $2.4 trillion balance-sheet reduction from the peak in April 2022, the Fed has officially flipped the switch. QT ended in November and QE is already back. In their latest meeting, the Fed announced $40 billion per month in Treasury Bill purchases to start.

Where will that money come from? They will create it out of thin air, with accelerating increases in the money supply which continues to hit record highs.

My expectation is that this latest announcement is paving the way for more bond buying in 2026 on the long end of the curve.

Why?

Despite the Fed cutting short-term rates by 175 bps since September 2024, long-term bond yields have risen. The 30-year Treasury yield was below 4% when the Fed started cutting rates and is now above 4.8%. Which means the market is betting on higher long-term inflation.

How do you counteract that?

Either by pursuing policies that lower future inflation (reducing the deficit, raising interest rates, less money printing) or by manipulating the bond market. The most palatable of these options is engaging in yield curve control (more QE) – which is why I believe it’s only a matter of time before the Fed is pressured to do so.

4) The Lower Rates Litmus Test

Speaking of pressure, this much is clear: the next Fed chairman will much more receptive to President Trump’s unrelenting calls for lower interest rates.

How do we know this?

He has said exactly that…

And who is the leading candidate for the chair position? Kevin Hassett, who stated in the past week that the US is “way behind the curve on lowering rates” and that “there’s a lot more room for lower rates.”

Say goodbye to the “independent” Fed.

5) The Year of the Comeback

On April 8, the S&P 500 was down over 15% on the year, its 4th worst start to a year ever. But after a 38% rally, it’s now up 17% on the year, hitting 38 all-time highs along the way. This has been one of the greatest market comebacks in history.

The US economy showed a big comeback as well. After a -0.6% downturn in Q1, real GDP snapped back with a +3.8% reading in Q2 and +4.3% in Q3. The Q3 number was over 1% higher than consensus estimates.

The US economic expansion is now 65 months in duration and will likely show further growth in Q4 (Atlanta Fed is projecting +3%).

6) All Is Calm Again

Volatility felt high in 2025. But in reality? It wasn’t extreme at all. The $VIX has averaged 19 this year, which is slightly below its historical norm.

Back in April during the “Tariff Tantrum” the Volatility Index ($VIX) briefly crossed above 60. Today, on Christmas Eve, it’s below 14, its lowest level of the year. All is calm again.

7) A Few Interesting Stats…

a) Gas Prices in the US have moved down to $2.89 per gallon, their lowest level in over 4 years (note: national average).

b) The US Trade Deficit actually widened 17% in the first 9 months of this year.

c) The US collected a record $246 billion in customs duties over the last 12 months, which was 3x higher than what was collected in the 12 months prior ($81 billion).

d) In the first 2 months of the 2026 Fiscal Year the Federal Government took in $740 billion and spent $1.2 trillion. Don’t try this at home.

And that’s it for this year. Thanks for reading! Have a Merry Christmas and Happy Holidays!

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