The anticipated Santa Claus rally did not materialize, as two of the three major domestic indices declined in December. The Dow Jones Industrial Average was the only index to gain, rising 0.7%. In contrast, the S&P 500 and Nasdaq Composite indices declined by 0.1% and 0.5%, respectively. While A.I.-related technology companies were consistent drivers of the overall market throughout the year, they struggled during the final month. As markets open in 2026, investors will be looking for the next catalyst to boost risk assets, such as stocks. The Federal Reserve is expected to adopt a more dovish stance, especially as President Trump gains the opportunity to appoint more members to the Federal Open Market Committee (FOMC) and nominate a new Chairman. Financial conditions remain loose, and capital markets remain accessible to companies seeking capital.
Initial jobless claims for the week ending December 27 have impressively decreased to 199,000, markedly below the anticipated figures of 218,000 and 220,000. While this decline might suggest positive momentum, it’s essential to delve deeper into the seasonal distortions that influence the data. The unadjusted claims reflected a slight uptick of 5,300, contrasting with a projected seasonal adjustment of 26,600 claims. This significant gap underscores the importance of a nuanced interpretation of our labor market landscape. The four-week moving average also nudged up by 2,000 to reach 219,000, indicating that the December drop may indeed be a product of seasonal patterns rather than a genuine surge in labor market strength. Continuing claims, on the other hand, fell by 47,000 to 1.866 million as of the week ending December 20, maintaining a steady insured unemployment rate of 1.2%. This stability suggests that, while new claims may fluctuate with seasonal influences, the number of individuals relying on ongoing support remains resilient. As we look to the future, addressing the existing challenges in the hiring environment will undoubtedly encourage continued Federal Reserve support throughout 2026.
The minutes from the December 9-10 Federal Open Market Committee meeting unveiled a rich tapestry of discussions among participants regarding the trajectory of monetary policy. A majority expressed confidence in the recent rate cuts, while a notable minority advocated for a pause on further reductions. President Trump’s appointees have continued to push for larger rate cuts. Overall, the dialogue reflects a keen awareness of the lags associated with previous cuts and emphasizes the need to ensure inflation returns sustainably to the coveted 2 percent target. A target we remain skeptical about, wondering whether it is realistic over the short term. Concerns about persistent inflation driven by tariffs, along with emerging signs of vulnerabilities in the labor market, such as rising unemployment among cyclical demographics, will remain at the forefront of discussions. These diverse perspectives enrich our understanding of the economic landscape, underscoring that future monetary policy decisions will be guided by evolving data. The Federal Reserve will need to continue to have a responsive approach to navigate the complexities of the economy with finesse.
Please see the following updates on existing positions held at the firm:
Net Lease Office Properties (Ticker: NLOP)— The liquidating REIT announced another special cash dividend of $4.10 for each outstanding share. The payment was paid out on December 19, 2025, to all investors holding shares as of the December 4, 2025, record date. Management funded this dividend in part through a recent real estate transaction involving a Thermo Fisher Scientific facility in Morrisville, North Carolina, which generated approximately $33.0 million in gross sale proceeds. We estimate a full liquidation value of $31- $33 per share and a liquidation to be concluded within the next 18 months. The market liked the news, and NLOP gained over 5% the following day.
CF Bank (Ticker: CFBK)- We had a constructive conversation with the CEO and CFO of the Columbus-based bank. We expressed concern about the level of selling involving one of CF Bank’s largest shareholders. Leadership provided a clear explanation of the rationale for the transactions. Separately, a week after our conversation, several bank executives bought shares in the open market, and the bank announced an extension of a stock buyback program launched at the beginning of 2025. The stock price reacted in kind, and we experienced a nice move from the $23 price level to the $27 range. We continue to believe this bank will be sold, but we now expect it to be in 2027-2028 rather than 2026. Our price target for a sale would be between $33-$35 per share.
Bristow Group (Ticker: VTOL)- Bristow’s Q3 2025 earnings project 2026 revenues of $1.58 billion to $1.69 billion, boosted by new government contracts. Adjusted EBITDA is expected to be $280 million to $310 million, with a Cash Return on Invested Capital (ROIC) of 15.8%. The company reported $160.6 million in adjusted free cash flow, aimed at $500 million in debt reduction, and plans a $0.125 quarterly dividend and a $125 million share buyback. With $245.5 million in cash, Bristow is well-positioned for growth and benefits from revenue diversification, with 25% of revenue from government services. Overall, we think the company’s stock offers a strong investment opportunity with significant upside. We have a fair value price target of $43-$45 per share.
FFB Bank (Ticker: FFBB)- We had another good conversation with CEO Steve Miller in the middle of the month. We discussed the bank’s loan book, deposit base, its consent order, and the possibility of an uplist to the Nasdaq. We believe the bank still has uplisting to a major exchange as a priority, meaning it will be seen when the consent order comes off. As we experienced with Blue Ridge Bankshares last month, bank regulators are being more proactive in releasing banks from consent orders. Bank leadership reiterated that they would like to be removed from the consent order before uplisting. We continue to estimate that when the uplist occurs, approximately 7-10% of the shares outstanding will be bought by fund sponsors like Vanguard, Blackrock, Invesco, etc as when the bank uplists, they will be added shortly to the Russell 2000 as their market capitalization is well above the minimum to be included. This Russell 2000 addition will bring the aforementioned wave of passive capital to us. Given the banks’ growth and profitability profiles, we would be surprised if this stock is not trading above $100 per share when added to the Russell 2000.
We are grateful for your support this year. We are excited by what 2026 will bring. If you have any questions, please reach out to us! We hope you had a good holiday season and a happy New Year!
Best regards,
Stash J. Graham