A Month That Rounded Out a Surprising Year
December brought a fitting close to a year marked by moderating price pressures, support from the Federal Reserve, and steady equity markets. This backdrop helped investors absorb another rate cut without disrupting the prevailing soft‑landing outlook heading into 2026.
Broadening Participation Across Equities
Market leadership expanded meaningfully during the final month of the year. After months of concentration in the “Magnificent 7” and AI‑driven names, a wider range of companies participated in the rally. This shift points to a healthier and more balanced setup as the new year begins.
Mixed Performance Across Major U.S. Indices
December saw notable divergence across major benchmarks. The S&P 500 finished the month nearly flat after a strong year. The Nasdaq 100 eased as investors took profits following outsized gains in AI and semiconductor shares. Meanwhile, year-end positioning favored the Dow, which benefited from flows into more defensive industrials.
Fed Signals Measured Easing Ahead
The Federal Reserve’s December meeting delivered another 25‑basis‑point reduction, bringing the federal funds range to 3.50%–3.75%. Officials described growth as “moderate,” hiring as having “slowed,” and inflation as “somewhat elevated.” Updated projections pointed to a gradual path for future cuts and sub‑trend growth expectations.
Minutes released late in the month highlighted a divided committee, with differing views on whether further easing could risk reigniting inflation or whether keeping rates steady posed greater risks to employment. Policymakers described the decision as “finely balanced.”
Inflation Continues to Ease
November’s Consumer Price Index showed further progress on inflation. Headline CPI rose 2.7% year‑over‑year, the lowest level since mid‑year, while core CPI increased 2.6%. Shelter, medical care, and household furnishings contributed to the core reading, though monthly increases for both headline and core came in below expectations. Despite a jump in gasoline prices, easing shelter and core services helped maintain a constructive disinflation trend.
Labor Market Momentum Slows
The unemployment rate moved up to 4.6% in November, prompting the Fed to emphasize downside risks to employment. Payrolls grew by 64,000—well below the year’s monthly average. Healthcare and construction added positions, while transportation, warehousing, and consumer‑focused industries reduced staff, consistent with a cooler hiring environment.
Services Stay Resilient as Manufacturing Contracts
Services activity continued to support the economy. The ISM Services PMI registered 52.6 in November, with business activity and new orders remaining in expansion territory. However, services employment stayed below 50, indicating slower hiring trends.
Manufacturing remained under pressure. The ISM factory index fell to 48.2, reflecting ongoing contraction tied to softer export demand and inventory adjustments—a goods‑side slowdown occurring alongside persistent strength in services.
Looking Ahead to 2026
Entering the new year, many strategists expect a soft‑landing outcome supported by modest economic growth, inflation drifting closer to 2%, and a cautious pace of future rate cuts. For long‑term, diversified investors, familiar themes continue to apply: staying invested, maintaining balance across growth and income, and viewing volatility as an opportunity rather than a deterrent.
If you’d like to understand how these developments relate to your own financial plan, our team is here to help with personalized guidance and support.