Stocks closed higher on Wednesday with the S&P making a new all-time high in a shortened Christmas Eve trading session.

The end-of-year rally continues ? and now we can officially call it a Santa Claus rally since technically it's defined as the last 5 trading days of December (which started on 12/24), and the first two trading days of January.

Stocks got a boost last week with a better-than-expected inflation reading (core CPI (ex-food & energy) eased to 2.6% vs. the previous 3.0% and expectations for the same). And they got a further boost with this week's better-than-expected Q3 GDP, which put growth at 4.3% vs. last quarter's 3.8% and views for 3.2%.

However, in spite of the strong confirmation of the economy's resilience, there are signs of stress in the labor market. And while inflation is still too high, it's currently less of a problem than the risks to the labor market. And that gives the Fed the green light to focus more on the employment part of their dual mandate of maximum employment and stable prices. And that suggests another rate cut could come sooner rather than later.

While it probably doesn't matter that much if the Fed cuts again in January or March, they should not wait too much longer than that. As it stands now, the likelihood of a January cut is at 15.5%, while the odds favor a March cut at 48.2%.

That would get us closer to the so-called neutral rate where it can support full employment and also stable inflation.

On Tuesday, National Economic Council Director Kevin Hassett echoed the same, saying he believes the Fed is "way behind the curve in terms of lowering rates."

He has a point. Most of the G10 Central Banks have cut more than the U.S. Same goes for developing nations, and by even larger margins.

In the meantime, one cannot overstate the strong GDP numbers, which "reflected increases in consumer spending, exports, and government spending," according to the Bureau of Economic Analysis (BEA). It was the strongest showing in two years (since Q3'23 of 4.7%), and the second best in 4 years (Q4'21 of 7% -- fueled by post-pandemic economic recovery and government stimulus).

Q4'25 is not looking like a slouch either, with estimates by the Federal Reserve Bank of Atlanta's GDPNow forecast putting it 3.0%. A strong number, given the drag the 43-day record government shutdown which lasted all of October and the first part on November, had at the beginning of the quarter.

That growth can also be seen in earnings estimates. (Q4 earnings season is right around the corner.) Estimates for S&P 500 companies for Q4'25 is forecast at 6.9%; Q1'26 is at 10.2%; and Q2'26 is at 11.9%.

No wonder stocks are nearing or making new all-time highs.

And that should continue given all of the above.

Not to mention the ongoing AI boom, which has been picking up steam, once again.

YTD, the Dow is up 14.5%; the S&P is up 17.9%; the Nasdaq is up 22.3%; and the small-cap Russell 2000 is up 14.3%.

There's just 4 more trading days left in the year. Today and three more next week. (Markets are closed on Thursday for New Year's Day, but that's 2026 already.)

That should be plenty of time for the S&P to pick up another 2.1% to finish up 20% (or more) for the year, making it 3 years in a row of 20%+ gains.

Best,