Stocks closed modestly lower again yesterday.

Profit-taking, position squaring, and tax-loss harvesting likely kept a lid on stocks yesterday.

Might not get the 20% gain in the S&P I was hoping for this year. YTD, with 1 more day to go, the S&P is up 17.3%. (The total return (which includes dividends), is up 18.7%.)

But that's not too shabby. Especially after a 24.2% gain in 2023, and a 23.3% gain in 2024. That's 3 years of double-digit gains. (And that equates to an average annual gain of 21.6% -- which is nearly twice the average annual 11.5% gain of the S&P since 1950.)

The other indexes had stellar years, so far, as well. The Dow is up 13.7%; the Nasdaq is up 21.3%; and the small-cap Russell 2000 is up 12.1%.

All eyes were on yesterday's FOMC Minutes. But it hardly elicited a reaction. The Minutes essentially told us what we already knew: that there was disagreement over the December rate cut. There were 9 members who voted for a 25 basis point cut, while 2 wanted no cuts, and 1 wanted 50 bps. As for the future, same story. Some see further adjustments, while others would prefer a pause. But ultimately, the consensus was for 1 more 25 basis point cut in 2026. (Not to mention another one in 2027.)

The timing, however is unknown. And it came with qualifications. The Minutes showed that "most participants judged that further downward adjustments to the target range for the federal funds rate would likely be appropriate if inflation declined over time as expected."

So, no new news. But that's just fine. Because the 'old' news is quite supportive.

Inflation is easing. Rates are expected to ease further next year. And growth is increasing. We are seeing that play out in the steady stream of economic reports. And we're seeing that in the official outlooks as well.

At the last Fed meeting earlier this month, the Fed updated their Summary of Economic Projections (SEP), which they do only 4 times a year.

They increased their 2025 GDP forecast to 1.7% from 1.6%. For 2026 it rose to 2.3% from 1.8%. For 2027 it was upped to 2.0% from 1.9%. And 2028 was increased to 1.9% from 1.8%.

Their unemployment rate estimate for 2025 was steady at 4.5%. For 2026 it was steady at 4.4%. 2027 was reduced to 4.2% from 4.3%. And 2028 was steady at 4.2%.

PCE core Inflation forecasts for 2025 were lowered to 3.0% vs. 3.1%. 2026 is pegged at 2.6%. 2027 was put at 2.2%. And 2028 was at 2.0%.

And the Fed Funds rate projections came in at 3.6% for 2025; 3.4% for 2026; 3.1% for 2027; and 3.1% for 2028. Their longer run rate was also steady at 3.0%. In short, the dot plot is forecasting one 25 basis point rate cut in 2026, and one cut in 2027.

Combine that with increasing earnings estimates for the S&P, and the continuing AI boom, and it's a bullish picture for the economy and the market.

And that's why I'm expecting another double-digit gain again next year, and the year after that.

Note, the markets will be closed on Thursday for New Year's Day.

But the markets are back open on Friday, marking the first trading day of 2026!

In the meantime, Happy New Year.

See you in 2026,