The Great December Delusion: When Gold Peaks and Stocks "Rally" on Empty Liquidity

We're living in a low-information market dressed up as a comeback story. The S&P 500 gained 0.64% on Monday, which is fine. Nothing shocking. But the why behind the move—that's where the fiction gets interesting.

The cheerleaders are out in force. Markets rose for a fourth straight day. The Nasdaq, up 0.52%. Oracle surged 3.34%. Nvidia bounced 1.49% on a Reuters report about H200 chip shipments to China. Gold hit its 50th all-time high this year. Silver joined the party. The narrative writes itself: healthy Santa rally, year-end cheer, AI still has legs.

Except traders aren't chasing anything. They're positioning.

That's the tell. Muted volatility. Controlled bids. No broad-based panic into records. When portfolio managers describe this market environment, they use words like "orderly" and "comfortable with current levels." Translation: nobody's scared enough to move hard, and nobody's excited enough to take real risk. The market is essentially on cruise control, cruising toward the 7,000 level on the S&P 500 on fumes—thin holiday liquidity and a calendar effect everyone's betting will materialize.

The Santa Claus rally historically runs 1.3% over five trading days. We need that. The S&P 500 is up 17% in 2025, clawing toward a third straight 20% annual gain. That would be "pretty rare," as one Wall Street deputy CIO observed this week. Pretty rare is also code for overextended. When equity indices chase back-to-back 20% years, gravity eventually remembers them.

But here's where the delusion locks in: gold and silver are hitting record highs while stocks are also near all-time highs. That's not a sign of equilibrium. That's a sign of hedging chaos. Long-term inflation expectations fell to 3.2% in December from 3.4% in November—a cooling that should theoretically keep gold contained. Instead, precious metals are screaming, which means markets are hedging something. Perhaps it's the Fed's unknown next chair. Perhaps it's tariff uncertainty. Perhaps it's simply that nobody truly believes the inflation story anymore, and they're protecting themselves in assets that historically won't care.

The Treasury market is flashing amber, too. The 10-year yield is hovering around 4.16%. That's not low, but it's not high enough to crater stocks or slow the credit-fueled momentum we've lived on all year. It's the Goldilocks zone for equity bulls, and nobody wants to break it by asking hard questions about whether 14% earnings growth forecasts for 2026–2027 are actually achievable when the economy is still running through inventory cycles and consumers are showing fatigue.

December consumer sentiment came in at 52.9, up from 51, but it still missed expectations. The University of Michigan's preliminary read was 53.3, and we ended up at 52.9. That's not a roaring consumer. That's a consumer holding on for dear life into the holidays, hoping something breaks favorably in the new year—like tax policy clarity, like lower rates, like not buying into the tariff bluff.

Wall Street's target for the S&P 500 at year-end 2026 is 7,629 on average (7,650 on a median basis). That implies another 11-13% gain in a year when everyone knows Fed cuts are slowing, when layoffs are picking up, when the political calendar shifts toward midterms, and when the market is already priced for perfection. UBS is bullish. They think earnings growth, easy money, and policy clarity will carry the day. They're probably right for the first two quarters. After that? Heavier sledding.

The real danger isn't the rally. It's the complacency built into it. When Micron jumps 4% on earnings results, when Nvidia rises on permission to ship chips to China, when Oracle climbs as ByteDance's TikTok joint venture gets greenlit—these are all positive catalysts, sure. But they're also incremental. They're not enough to justify valuations when long-duration tech is already front-loaded for victory in every conceivable AI scenario. The market is pricing in the upside. It has no bandwidth for the downside.

And yet, on we go. The liquidity is thin. The positioning is tight. The narrative is locked. And gold keeps hitting new highs while stocks keep grinding higher, which is the precise opposite of what happens in a market at ease with itself.

Welcome to December 2025: where everyone's rallying, nobody's believing, and the real move is probably going to hurt when liquidity comes back in January.