The two primary topics in market circles recently have revolved around AI and the Federal Reserve. This week there were major catalysts on both fronts, making it a pivotal week for the rest of 2025. The increased scrutiny of AI along was probably the biggest driver of this week’s rotation in equities. Value outperformed growth and small outperformed large. Info tech and communication services were the worst performing sectors with Netflix also weighing down the latter amidst the ongoing Warner Bros. saga. Yield oriented REITs and Utilities also closed lower with the back up in long dated Treasuries. Utilities also got pulled lower with the AI downdraft. Materials led to the upside with strength in chemical and metals stocks. Financials also outperformed with insurance higher after some takeover rumors and generally positive corporate updates at conferences this week. Within Industrials airlines and freight and logistics stocks traded well. Next week is the last full trading week of the year, only 11.5 more trading days in 2025. The week will be full of economic data including the delayed government data and the December flash PMIs. There are also multiple central bank rate decisions including the BoE, ECB and BOJ. Next Friday is the last big liquidity event of the year with Triple Witch Expiration and the S&P Quarterly Rebalances while the CRSP rebalance begins on Wednesday. Happy Chanukah to those who celebrate. Have a great weekend!

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