Expect a choppy December

November's strong performance for equities has moved the Dow to just about even for the year and we're up about four points on both the Nasdaq and S&P 500. So, what factors moved the market last month and what should we expect from December?

In my view, the recent upturn was driven by the following factors:

• Solid third quarter earnings reports.
• Oil dropped from $70 per barrel and has stayed below $60 for weeks.
• Solid consumer confidence numbers suggesting a strong retail holiday season.
• Lower inflation expectations.
• The expectation that the Fed is near the end of its tightening cycle.

Regarding the Fed, we'll most likely see two more 25bp hikes, which is probably two more than necessary given the Fed's history of overshooting neutral. The result will be a sluggish 2006 economy with the chance of a negative GDP growth rate in at least one quarter. By the end of the new year the Fed may have to contemplate a reversal in interest rates.

With this remaining uncertainty about the Fed in the near term, any good economic news will cause worries that the Fed's tightening is unfinished and drive stocks down while negative economic news would trigger the opposite.

My forecast is for a choppy market through the end of the year. A Dow above 11,000 this year is looking about as likely as a white Christmas in San Francisco. Oh well.