Market Update

The Santa Rally and the Dot Plot Duel

Dec 07, 2025

Welcome back everyone. It is the Second Advent and after the recent dips the market seems to have stabilized and is heading back toward All Time Highs. Business as usual…

Latest Data and News in Review What Moved the Markets?

Global equities have done what they do best which is simply rising. This has been the case for months with only a few exceptions in November. The only dampener for Eurozone investors might be the weaker dollar which is likely due to the highly probable nomination of Kevin Hassett as the next Fed Chair. It is also notable that Bitcoin has behaved like digital gold on a weekly basis again as it dropped in textbook fashion while yields rose noticeably across all maturities.

Will there be a Santa Rally?

This is the question of all questions. At least currently there seems to be little standing in the way of stocks moving higher. Seasonals support a further rise. The technical background is also quite positive unlike in previous weeks. Volatility has collapsed and the market has cleared all relevant trend following trigger levels so systematic flow finally appears to be on the long side. Additionally we are in the open window regarding buyback programs. However what could potentially stop the widely desired year end rally would be a too dovish Fed stance at the next FOMC meeting on Wednesday.

What Is Coming Up This Week?

This brings us directly to the upcoming events of the next few days. The standout event is by far the FOMC meeting and the rate decision on Wednesday. The market is currently pricing in an 86.2% probability of a 25 basis point cut. Even more important than the immediate rate change will certainly be the press conference and the upcoming dot plot regarding the further trajectory for the Federal Funds Rate target range. It could also be interesting to see if Jerome Powell says anything regarding the current liquidity situation in the reserve market and any associated future resumption of Quantitative Easing (brrr…)

USD:

FX markets remain quiet with volatility at yearly lows. Metal-backed currencies like AUD or CAD are outperforming, while the Dollar remains soft ahead of next week’s expected rate cut and Kevin Hassett’s potential confirmation in January, which markets view as dovish. While real rates recently rose, a Hassett-led Fed could depress them, further weighing on the greenback. We align with the consensus for seasonal USD weakness into year-end, targeting 1.17 for EURUSD. DXY technically, sustained trading under 99.00 opens the door towards 98.00.

Price Targets S&P 500 for 2026:

Before heading into the Second Advent lets glance at the 2026 S&P 500 price targets. Bank of America anchors the low end at 7100 citing multiple compression while Wells Fargo offers a meager 7200. Optimism builds with JP Morgan at 7500 and Goldman Sachs at 7600 but surprisingly even perma bear Mike Wilson at Morgan Stanley sees 7800. The clear bulls however are the Germans with Deutsche Bank and DZ Bank leading the pack at 8000.

Gauch Research View

Our strategic outlook remains unchanged. We maintain a long term bullish but cautious view on the S&P 500. However we adopt a short term bearish view on the US dollar and a bullish bias on the Euro Dollar exchange rate. Short term volatility may persist but the broader narrative continues to point toward resilient US growth.

Atlas-Terminal COT Overview: