Equity Momentum Broadens
December closed out a year marked by steadier inflation, a supportive Federal Reserve, and durable equity markets. As the month progressed, leadership widened beyond mega‑cap technology and AI‑linked names, with a broader group of companies participating in the rally. This shift suggested a more balanced backdrop heading into the new year.
Labor Market Signals Mixed Conditions
Employment data softened as the unemployment rate reached 4.6% in November. Job openings continued to normalize while layoffs remained low, reflecting what analysts described as a slower hiring environment. Monthly payroll gains of 64,000 underscored this cooling trend, with transportation, warehousing, and consumer‑oriented industries declining even as healthcare and construction added workers.
Stock Indexes Show Diverging Paths
Major U.S. stock averages moved in different directions in December. The S&P 500 was largely unchanged after a strong year, the Nasdaq 100 gave back ground following earlier leadership from AI‑related sectors, and the Dow advanced as investors favored more defensive industrial names. These contrasting moves highlighted shifting preferences as the year drew to a close.
Fed Communications Outline a Gradual Course
The December 10 Federal Open Market Committee meeting resulted in a third 25‑basis‑point rate cut, bringing the target range to 3.50%–3.75%. Policymakers described economic growth as “moderate” and noted that inflation had cooled while signs of labor market weakness became more prominent. Updated projections pointed to a measured easing path through 2027. Minutes released later in the month revealed a closely debated decision, with differing views on how firmly disinflation had taken hold.
Inflation Continues to Ease
November inflation data showed further cooling. Headline CPI rose 2.7% year‑over‑year, the lowest reading since mid‑year, while core CPI increased 2.6%. Monthly gains for both measures came in below expectations. Although shelter and core services remained firm, moderating momentum supported the broader disinflation narrative. Energy prices rose, but the increase was outweighed by slowing shelter and services components.
Services Hold Up as Manufacturing Contracts
A contrast remained between services and manufacturing activity. The ISM Services PMI posted its ninth straight month in expansion territory at 52.6, though the employment index remained below 50. Meanwhile, the manufacturing gauge slipped deeper into contraction at 48.2, reflecting subdued export demand and inventory adjustments.
Looking Ahead to Early 2026
As 2026 begins, strategist expectations continue to center on a soft‑landing environment. Moderating inflation, modest growth, and a gradual pace of policy easing remain key elements of this outlook. For long‑term investors, maintaining balance across growth and income exposures and taking advantage of volatility rather than retreating from it remain steady themes.
If you have questions about how these developments may relate to your financial plan, we encourage you to reach out to our financial team for personalized guidance and support.
