US stocks kept climbing, with major indexes rising for the fourth day in a row. Investors showed strong interest in AI-related companies during this shorter trading week. The S&P 500 went up by 0.3%, remaining near its record high. The Nasdaq Composite jumped about 0.4%, thanks to increases in big tech and AI stocks. The Dow Jones Industrial Average added roughly 80 points, while small-cap stocks lagged behind, with the Russell 2000 dropping around 0.6%. The market reacted to a delayed report showing the US GDP grew at a 4.3% annualized rate in the third quarter, exceeding expectations. This growth was driven by consumer spending, leading some to wonder when the Federal Reserve might reduce interest rates. Futures markets expect two rate cuts from the Fed by the end of next year. There’s also some attention on possible changes in Fed leadership that might adopt a more lenient approach.

Consumer Confidence Concerns

The Conference Board reported a drop in consumer confidence in December. This decline indicates worries about future economic conditions, even with strong growth. Citadel plans to return $5 billion in profits to investors, showcasing the strength of large alternative asset managers. In the commodities market, gold and silver reached new heights, with gold surpassing $4,530 an ounce and silver rising above $70 an ounce. These increases are fueled by hopes for rate cuts and concerns about inflation. Markets expect a holiday season with stocks nearing record levels, driven by optimism in technology and possible easing of monetary policy. We see a common trend in the market: large-cap tech is thriving while small caps are lagging. This presents opportunities, such as buying call options on the Nasdaq 100 while purchasing puts on the Russell 2000. This approach protects against a broad market downturn while benefiting from the ongoing strength in AI, a trend we’ve observed throughout 2023 and 2024. The market seems to be overlooking strong economic growth and focusing solely on future rate cuts, creating a trading opportunity. With November 2025’s CPI data showing a persistent 2.9%, any tough comments from the Fed in January might surprise traders. We think buying volatility through VIX call options or S&P 500 straddles is a smart way to prepare for potential market adjustments.

Warning Signs for Retail Spending

The decline in consumer confidence, despite solid GDP growth, signals trouble for retail and discretionary spending. This follows a three-month drop in the University of Michigan’s sentiment index, indicating that household finances may be under pressure. It could be wise to buy protective put options on consumer discretionary sector ETFs ahead of the upcoming earnings season. Gold and silver hitting record highs is significant, driven by expectations of rate cuts and reports of ongoing central bank purchases throughout the fall of 2025. Similar to the breakout we saw in 2024, this trend could continue, making bullish call spreads on gold miners or the metal’s ETFs appealing. However, since prices have already risen significantly, we should keep our position sizes small to manage the risk of a sudden reversal. We must keep in mind that we are entering a period of low holiday trading volume. This decreased liquidity can cause bigger price swings with minor news, a trend we often see during the last week of the year. It’s wise to tighten stop-losses and consider using defined-risk option strategies rather than holding large speculative positions as we head into the new year. Create your live VT Markets account and start trading now.

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