How the Fed (almost) stole Christmas; TikTok's last dance; DC budget two-step

It was all going so well … Santa Claus was coming to town (for a Wall Street rally), a fitting crescendo to a second consecutive spectacular year for stocks. The Fed delivered on that 25-basis point rate cut that some people who think about these things began to say was not necessary but no biggie we'll take it.??

But oh, that dot plot. The year's last print of the forward-thinking hive mindset of the Fed, updated every quarter, lowered expectations for cuts next year, from four to two. Nothing is set in stone, of course, but on an apples-to-apples basis people who think about these things think about this particular thing, a lot. Question is: Is good news good news or bad news? That is to say, would the camp that increasingly thought the Fed shouldn't have cut this time because things were really quite peachy prevail in the market — because, in an ideal world, no rate changes are necessary — or will the bears who always assume someone knows something terrible they don't have an inflation-isn't-licked-I-told-you-so moment?

On Wednesday, at least, good news was bad news. Very bad. All the major indexes cratered, the Dow by 2.58%, capping a 10-day losing streak that was the longest since 1974. But that was the good news. The S&P 500 fell 2.95%, Nasdaq 2.69%.?

Markets have a mind of their own, of course, and as the saying goes: There are many reasons to sell, just one to buy. And it has been a great year. And there were plenty of stocks with unlikely runs that might have begged for some profit-taking. Even after Wednesday's beating, the Dow was up 12.23%, the S&P 23.81% and the Nasdaq 36.15% on the year.?

The slide didn't go global or bleed into Thursday (the Dow even broke its losing streak, albeit with a meager 15-point gain). But on Friday Wall Street rallied, after the Fed's favorite metric, PCE, came in slightly better than expected and Austan Goolsbee, Chicago Fed president and voting FOMC member next year, made some dovish remarks. The budget deadline frenzy (more below) did not interfere.

So, will there be a Santa Claus rally? Purely on the odds, probably. Per IG Bank:

The Santa Claus rally refers to a historical trend where stock market prices typically rise from 26 December to 2 January. Identified by Yale Hirsch in 1972, this phenomenon has shown consistent performance, with the S&P 500 historically gaining an average of 1.3% during this period.

Stock prices have increased about 79% of the time during this seven-day period, making it a well-known and closely watched seasonal trend. This rally is often driven by investor optimism, holiday spending, and year-end trading strategies like tax-loss harvesting. These activities create more trading activity as investors adjust their portfolios before the year ends.

Speaking of the budget deadline, we kind of missed it, again. Not for lack of trying. But along with all the usual forces that block timely success, add two, new, very different ones: an unusually muscular (but not enough, more below) president-elect with a massive following on a social media platform he owns, along with his buddy, a multi- multi- multi-billionaire with massive following on a social media platform he owns.?

Caught in the middle (I mean, besides America) is a House speaker who was nobody's first choice, and is now getting dunked on not only by his peers, but said president-elect. Dunked on so hard that there is loose talk of replacing him with Elon Musk.

A brief recap: A fairly standard compromise bill (called a continuing resolution, or CR) was agreed by House leaders. This fairly standard bill had the usual stuff that wasn't exactly necessary to move the ball the necessary five yards, but with a CR you need a super majority and that gives the minority party extra leverage, especially when the majority party is only in the majority by a handful of votes.

Trump and Musk expressed vociferous objections. Musk, like 150 times. One of his words was "crime." You get the idea.

It did not pass.

A second attempt, shorn of a lot (but not all) of that compromise stuff, was DOA with the Dems. Leader Hakeem Jeffries didn't say much, but one of his words was "laughable." You get the idea.

It did not pass.?

But a funny thing happened on the way to the floor: 38 Republicans voted against it, despite a plausible threat from the president-elect that each and every one of them would face a primary battle in their safely Republican districts in two years.

Late on Friday, Plan C prevailed in the House. It needs to clear the Senate and get signed by President Biden but the people who think about these things said the worst-case scenario would be a partial shutdown for part of the weekend.?

Yes, you've seen this movie before. But since there are really only maybe five stories in the history of the world, and everything you've ever seen or read is a variation on one of those themes, it isn't about the story, but the telling. And this story has been very telling indeed, about the shifting sands of power (nobody had unelected South African multi- multi-multi-billionaire immigrant dictating terms to the second in line to the presidency on their bingo cards) and — even decades into the digital age — how the speed of information and how it's conveyed to stakeholders can change things at the speed of light.

But like any decent story, this one was most chaotic just before everything worked out (reminder, every Hallmark movie). Early Friday morning, with not even a new compromise CR in place, uber-plugged-in DC pundit Mike Allen shared confidently on CNBC that "very likely, if there's a shutdown, it's fixed by the time markets open Monday morning."

Which is of course all that matters, so we can take a quick bathroom break and get up to speed on the next unlikely and yet entirely predictable romance movie. I mean, crisis.

I won't belabor the Hollywood angle on this one, because it writes itself: TikTok got a hearing before the Supreme Court in record time — like 48 hours from appeal to acceptance, with oral arguments in only a month. People who think about these things say this never happens unless there is a political or constitutional crisis — think the 2000 presidential election, and the Trump immunity case.

So the fate of a private company controlled by interests in a foreign adversary nation (or the foreign adversary itself, depending on who you listen to), however imminent, seems … less consequential. Even though the law that requires China-based owner ByteDance to divest to non-China interests or face a ban seems to have no precedent, and the service itself is as popular as they come.

TikTok has leaned hard on the argument that the First Amendment rights of its huge U.S. user base (just about half the U.S. population) would be violated by a ban.

So far, the argument is not resonating, including an epic fail at the appeals level. The unanimous opinion by Douglas Ginsburg is one for the books:

"On the merits, we reject each of the petitioners' constitutional claims," Judge Douglas Ginsburg wrote in the court's decision issued Friday.

"The First Amendment exists to protect free speech in the United States," Ginsburg wrote. "Here the Government acted solely to protect that freedom from a foreign adversary nation and to limit that adversary’s ability to gather data on people in the United States."

Ouch.

So, nine days before the Jan. 19 ban deadline, and a day before a new president is sworn in, SCOTUS will hear arguments. It could rule before the deadline, of course, and if it doesn't want to, can do what the appeals court didn't and suspend enforcement of the law pending review. Also, the law allows the president to delay implementation for 90 days, but only if he asserts TikTok has made some progress toward a sale — which might be a problem for anyone whose problem this would no longer be in a matter of hours. And, though he instigated the divest initiative, Trump has softened on the idea recently, and even received CEO Shou Chew at Mar-a-Lago this week.

In any event, it seems unlikely that anything material will happen for a month, unless TikTok reverses course and deigns to consider any one of many known offers.?

The odds of that? Considerably less than a Santa Claus rally.

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