December 2025 Market Commentary

In December 2025, global financial markets adopted a cautious yet constructive tone, as investors balanced year-end positioning against an evolving macroeconomic backdrop. After a volatile midyear period, market attention in December shifted away from immediate downside risks toward the longer-term trajectory of growth, inflation normalization, and monetary policy into 2026.

A dominant theme during the month was anticipation rather than reaction. Investors largely looked past near-term economic noise, focusing instead on forward guidance from central banks, corporate outlooks, and early signals for earnings growth in 2026. Inflation continued to moderate across major developed markets, reinforcing expectations that restrictive monetary policy was nearing its endpoint. Policymakers, however, continued to emphasize data dependence and patience.

Generally, equity markets benefit from this shift in sentiment, as performance is driven by earnings durability, balance sheet strength, and secular growth exposure, as opposed to broad multiple expansion. Market leadership remained narrow at times, reflecting investor selectivity and lingering valuation discipline after a strong multi-year run in certain segments. Instead of the anticipated “Santa Claus Rally” into the year-end, the S&P 500 ended relatively flat for the month. Financials and Materials were the top performers, rising 2.9% and 2.0%, respectively. These gains were offset by declines in Utilities and Real Estate, which fell 5.3% and 2.8%. The S&P 500 posted losses in 6 of its 11 sectors in December, reflecting a broad but modest pullback following a strong overall performance in 2025. Meanwhile, the Dow Jones Industrial Average recorded a modest 0.73% gain for the month, while the technology-heavy Nasdaq 100 Composite declined by approximately 2%.

In fixed income, December saw renewed interest in duration as bond yields stabilized and investors reassessed the risk-reward profile of longer-dated assets ahead of a potential easing cycle. Credit markets remained resilient, supported by healthy corporate fundamentals and contained default expectations. However, spreads reflected a degree of caution consistent with late-cycle dynamics.

Geopolitical and political considerations remained part of the backdrop, including trade policy, global conflicts, and fiscal sustainability, but did not dominate market pricing during the month. Instead, year-end rebalancing, tax planning, and portfolio positioning played a meaningful role in market flows, contributing to pockets of volatility beneath the surface.

With December marking the end of the fourth quarter, markets saw a shift away from AI heavyweights, semiconductors, and hyperscalers, driven by concerns over elevated AI capital expenditures and resulting investor skepticism. This rotation favored sectors that had previously underperformed. Health Care led this quarter, gaining approximately 11.2%, amid attractive relative valuations and the introduction of new GLP-1 weight-loss pills entering the market. Real Estate continued to struggle, ending the quarter down 3.7%, as weakness in commercial real estate persisted despite falling interest rates.

For the full year 2025, U.S. equity markets delivered another strong performance, extending the multi year run of gains across major benchmarks. The S&P 500 rose approximately 16% to 18%, marking its third consecutive year of double digit returns and closing near record highs despite a modest late year pullback. The NASDAQ Composite and NASDAQ 100 outpaced the broader market, with total returns in the low to mid 20% range, which was driven predominantly by technology and AI related strength. Additionally, The Dow Jones Industrial Average posted a solid gain in the mid teens, reflecting broad industrial and cyclical participation alongside tech leadership.

Not all segments of the market participated equally. At the sector level, Technology emerged as one of the top performers in 2025. This was powered by ongoing artificial intelligence adoption, memory demand, and strength in semiconductor and software stocks. Moreover, Industrials and Communications Services outperformed the broader index, which were supported by aerospace, defense, and hyperscaler growth. By contrast, Consumer Discretionary lagged appreciably. Many retailers and discretionary names struggled amid shifting consumer patterns and competitive pressures. Meanwhile, sectors such as health care exhibited wide dispersion, where stock specific factors mattered more than broad industry trends.

This performance landscape underscores both the strength and narrowing nature of the 2025 rally, with leadership concentrated in innovation driven and industrial growth areas - even as traditional defensive and consumer oriented groups trailed behind.

As 2025 came to an end, precious and industrial metals posted strong rallies, reflecting a combination of macroeconomic, supply-side, and structural demand factors. Gold, silver, platinum, and palladium all recorded notable gains in the fourth quarter, with silver and palladium leading due to their critical role in industrial applications. Investor interest in metals was driven not only by traditional safe-haven demand amid a low-rate environment and the Federal Reserve easing, but also by supply constraints and rising demand from technology and green energy sectors.

The industrial applications of these metals are substantial. Silver is widely used in electronics, solar panels, and high-performance connectors. Platinum and palladium are essential for catalytic converters, hydrogen fuel cells, and various chemical processes. Gold remains a store of value, but also plays a role in electronics, dentistry, and precision components. These uses create a baseline industrial demand that is less susceptible to market swings, giving metals a dual role as both speculative assets and functional industrial inputs.

Investors closely follow the gold-to-silver ratio (GSR), which measures how many ounces of silver it takes to buy one ounce of gold. Historically, a high GSR can signal that silver is undervalued relative to gold, often prompting investors to increase exposure to silver. In late 2025, the GSR declined modestly from elevated levels earlier in the year, reflecting stronger silver demand relative to gold - particularly from industrial and AI-related applications. This dynamic can help guide positioning across precious metals, balancing traditional hedging strategies with exposure to industrial demand.

Looking into 2026, metals are expected to remain a focal point for investors. Industrial demand is expected to grow, particularly from AI infrastructure, electrification, and green energy sectors. Meanwhile supply-side bottlenecks for palladium, platinum, and silver may support pricing. Gold is expected to retain its role as a portfolio diversifier and hedge against inflation or geopolitical uncertainty, while silver and the platinum group metals could see more cyclical upside tied to industrial growth. For investors, monitoring trends like the GSR and industrial production indicators will be key in identifying opportunities across the metals complex.

In mid December, the Bureau of Labor Statistics (BLS) released the November 2025 Consumer Price Index (CPI). This release provided the most recent update on U.S. inflation after the government shutdown disrupted the usual data collection schedule. On a year over year basis, headline CPI rose 2.7%, landing well below economists’ forecasts of around 3.1% and down from the roughly 3.0% pace seen in prior readings. Simultaneously, core CPI, which excludes the more volatile food and energy components, decelerated to about 2.6%. This marking is its slowest annual rate since early 2021. Both figures were surprised by the downside, suggesting a broad cooling in price pressures heading into year end.

Additionally, the report showed disinflation across both goods and services categories, with shelter costs, apparel, and several durable goods components showing slower growth. However, energy prices continued to firm modestly, and food inflation remained persistent, albeit at a milder pace earlier in 2025. Analysts have noted that the unusual data collection window, which began in mid-November and extended through the holiday season, could skew the results, as discounting and seasonal promotions may be more heavily reflected in the sample. As a result, some economists have urged caution in interpreting the full significance of this single data point.

From a policy perspective, the softer than expected inflation print reinforces the narrative of gradually easing price pressures. This, in turn, supports the market’s expectations for additional Federal Reserve rate cuts in early 2026. Treasury yields moved lower across much of the curve as markets digested the CPI data alongside other economic indicators. However, Federal Reserve officials, including Chair Powell, cautioned that shutdown-related distortions may limit the report’s reliability as a standalone signal, reinforcing the need to monitor upcoming CPI and PCE data before drawing firm conclusions about the inflation outlook.

The University of Michigan’s Consumer Sentiment Index offers valuable insight into how households view the economy, personal finances, inflation, and buying conditions. In November 2025, sentiment remained subdued, with the headline index falling to around 51.0, one of the lowest readings in the monthly series and significantly below year ago levels. This reflected persistent concerns about high prices, strained household budgets, and softening views on personal financial conditions and business prospects. Both current economic conditions and forward expectations of components were weak, signaling broad unease among consumers as year end approached.

However, in December 2025, the index edged up to approximately 52.9, reflecting a modest improvement from November but remaining well below 2024 levels. The increase was driven primarily by improved expectations for future economic conditions and personal finances, while assessments of current conditions stayed weak. Despite the rebound, sentiment remained nearly 30% below December 2024, highlighting persistent “pocketbook” pressures and elevated concerns about job security and inflation among households.

Digging deeper, the December data showed that while consumers are cautiously more optimistic about the year ahead, buying conditions for big ticket items continued to deteriorate, and most respondents still expect unemployment to rise over the next 12 months. Inflation expectations also continued to ease but remained elevated relative to long run historical averages, underscoring the complex mix of short term relief and long term concerns shaping consumer attitudes.

Overall, the Michigan survey indicates that consumer confidence remained fragile at the end of 2025, showing only a slight improvement in December while continuing to reflect the cumulative effects of price pressures, labor market concerns, and weak assessments of current economic conditions. This softness in household sentiment could temper consumer spending in early 2026, making it an important data point for markets and policymakers to monitor alongside labor and inflation reports.

The U.S. labor market continued to lose momentum in November 2025, with employment data released by the BLS in mid-December, following delays caused by the federal government shutdown. Nonfarm payrolls rose by a modest 64,000 jobs, slightly exceeding expectations but underscoring a clear slowdown from the rapid hiring pace earlier in the year.

Despite the positive headline number, the **unemployment rate rose to 4.6%, which is the highest level since September 2021 - signaling that slack in the labor market is beginning to build. This rise reflects both slower job creation and a gradual increase in labor force participation, as more workers resume job search activity. Notably, job gains were concentrated in sectors such as health care (+46,000) and construction (+28,000), while government employment continued to decline, with federal payrolls shrinking further.

A closer look at the data reveals important nuances. Payroll employment has shown little net change since the spring, while underlying trends point to a tightening labor market, with cyclical industries such as transportation, leisure and hospitality, and information services experiencing softness. Wage growth also moderated, with average hourly earnings rising modestly, reflecting continued employer caution and slower demand for new hires.

Overall, the November report paints a labor market that is still expanding, but at a slower pace, with rising unemployment and uneven job gains. These trends, coupled with weak job openings and broader softening in labor indicators, are important for both policymakers and investors as they assess the trajectory of economic growth and inflation pressures into 2026.

In December 2025, the Federal Open Market Committee concluded its final policy meeting of the year. They conducted a widely anticipated 25 basis point cut to the federal funds target range, bringing it to 3.50%–3.75%. This marked the third consecutive rate reduction in 2025 as the Federal Reserve continues to respond to cooling inflation and signs of softening in the labor market. The decision reflected the Committee’s view that monetary policy had moved closer to a neutral stance, balancing ongoing inflation pressures against risks to employment and growth. Federal Reserve Chair Jerome Powell underscored that there is “no risk-free path” for monetary policy, highlighting the challenge of navigating between the Federal Reserve’s dual mandates of price stability and maximum employment.

Notably, the December vote revealed unusually broad internal divisions for what is typically a routine policy decision. Among FOMC participants, Governor Stephen Miran supported a larger half-percentage-point cut, advocating for more aggressive easing, while Austan Goolsbee and Jeffrey Schmid favored holding rates steady, citing continued economic resilience and inflation that remains above target. These dissents represent one of the clearest expressions of divergent views within the Committee in recent years, highlighting the tension between concerns over slowing economic momentum and caution against easing too quickly amid still-elevated price pressures.

Beyond the headline rate decision, the Committee’s Summary of Economic Projections (the “dot plot”) reflected a cautious outlook for future policy adjustments. Although the median projection continues to indicate one additional 25 basis point cut in 2026, the dispersion of individual forecasts is wide, and the overall message suggests that further easing is not preordained but will remain highly data dependent. Many policymakers emphasized that the current policy stance is near neutral, with any additional cuts contingent on clearer evidence that inflation is moving sustainably toward the Federal Reserve’s 2% objective without placing undue strain on labor markets.

Looking into 2026, markets and a few policymakers anticipate at least one more reduction, though this expectation diverges from the Federal Reserve’s more conservative median projection. Economic data, especially on labor market trends and inflation measures, will be critical in shaping the pace and timing of future rate decisions. With inflation forecasts modestly lower and growth expectations slightly stronger than previously projected, the Federal Reserve appears to be signaling a temporary pause in rate cuts early next year, while still leaving the door open to incremental easing should economic conditions soften further.

As markets digest the December policy shift, attention is increasingly turning to upcoming leadership changes at the Federal Reserve. Jerome Powell’s term as Chair is scheduled to expire in May 2026, concluding nearly eight years at the helm of U.S. monetary policy through multiple interest rate cycles and challenging macroeconomic periods. While Powell’s term as a member of the Federal Reserve’s Board of Governors technically runs through January 2028 - allowing him to remain on the Board after stepping down as Chair - tradition suggests that most Chairs depart the institution entirely at the end of their chairmanship.

President Donald Trump has publicly signaled his intention to nominate a new Federal Reserve Chair early in 2026, with remarks suggesting an announcement could come as soon as the first quarter. Several potential successors are reportedly under consideration, including prominent economic and policy figures both within and outside the Federal Reserve. Names frequently cited in media coverage include National Economic Council Director Kevin Hassett, former Federal Reserve Governor Kevin Warsh, and current Federal Reserve Governor Christopher Waller. These discussions reflect a broader effort by the administration to appoint a nominee aligned with its economic priorities, particularly regarding the pace and direction of future interest rate cuts.

As we begin 2026, broad market expectations reflect continued optimism tempered with caution. Equity markets have started the year on a positive note, with major U.S. indexes posting gains in early January as investors respond to a combination of resilient economic data, easing monetary policy expectations, and sustained enthusiasm around AI-driven growth. Early trading activity suggests that the market’s focus will remain on corporate earnings, rate cut prospects, and the evolving macroeconomic backdrop as more economic data are released throughout the month.

Looking at forecasts for the full year, Wall Street strategists generally expect further gains for the S&P 500, though not the exceptional pace seen in recent years. Year-end 2026 price targets from major firms largely cluster in a range, implying mid-to-high single-digit to low-double-digit returns from late-2025 levels. Deutsche Bank projects the most bullish outcome, with a target near 8,000, citing continued AI investment and earnings expansion. Morgan Stanley projects the index around 7,800, while Goldman Sachs forecasts 7,600 based on anticipated earnings growth and productivity gains. Projections from JPMorgan, HSBC, and Barclays generally fall in the 7,400–7,800 range, while Bank of America is more conservative with a target near 7,100. Taken together, the average Wall Street S&P 500 year-end target for 2026 is approximately 7,600, implying consensus expectations for continued equity market appreciation of roughly 11%.

Earnings expectations remain a central pillar of this outlook. Analysts broadly anticipate meaningful growth in S&P 500 earnings per share in 2026, driven by sustained strength in the technology sector, capital expenditures tied to AI adoption, and resilient consumer demand. While estimates for aggregate earnings growth vary, firms such as Goldman Sachs project approximately 12% year-over-year EPS growth, with total earnings per share approaching or exceeding $300 for the index by year-end. This sustained profitability growth is widely viewed as a key driver of the 2026 rally, helping to justify elevated valuations and support the forward outlook.

Despite generally constructive forecasts, strategists caution that risks remain, including elevated market valuations, potential volatility stemming from shifts in monetary policy expectations, and ongoing geopolitical or fiscal uncertainties. As such, while the consensus leans toward a solid year for equities in 2026, market participants should remain attuned to incoming data on inflation, corporate earnings trends, and the pace of Federal Reserve rate adjustments.

As we move into 2026, we have begun to strategically rebalance exposure within areas of the market that have led performance, particularly large-cap AI, semiconductor, and hyperscaler stocks. While we remain constructive on the long-term secular growth of artificial intelligence, the magnitude of recent gains, elevated valuations, and increasingly crowded positioning have prompted us to trim select exposures. This is not a shift away from AI, but rather an effort to rotate capital toward areas where fundamentals, valuation, and long-term demand appear more attractively aligned.

Specifically, we are increasing emphasis on the “picks-and-shovels” of the AI buildout - the enabling inputs and infrastructure required to support continued expansion. Key bottlenecks in the AI ecosystem include advanced memory, power generation, transmission, energy-intensive materials, and physical inputs that cannot be scaled as rapidly as software or compute capacity. As a result, we see compelling opportunities in targeted equities and ETFs tied to memory and storage, energy infrastructure, and industrial materials, where supply constraints and sustained demand may support durable pricing power.

Within materials, we are particularly focused on precious and industrial metals with critical applications across AI and electrification, including silver, platinum, palladium, and copper. These metals play essential roles in data centers, power grids, semiconductors, cooling systems, and electrification infrastructure. Unlike many technology assets, these markets face structural supply challenges, long development timelines, and rising competition for usage across multiple industries, creating a favorable backdrop for selective exposure.

In parallel, we are closely monitoring developments in the U.S. yield curve, particularly as the long end has begun to steepen. A steepening curve, driven by rising long-term yields relative to short-term rates, can signal shifting expectations around growth, inflation persistence, and fiscal dynamics. For investors, this environment carries important implications: it may create headwinds for long-duration assets, while improving the outlook for financials, select cyclicals, and income-oriented strategies. It also reinforces the importance of active duration management within fixed income allocations.

Overall, our positioning reflects a continued focus on risk management, diversification, and forward-looking opportunity identification. By trimming crowded leadership areas and reallocating toward structural enablers and underappreciated constraints, we aim to participate in long-term growth themes while maintaining resilience across a range of economic and market outcomes.

** This commentary is provided for informational and educational purposes only and should not be construed as investment advice, an offer, or a solicitation to buy or sell any security. The views expressed are based on current market conditions and are subject to change without notice. Past performance is not indicative of future results. Index performance is shown for illustrative purposes only; indices are unmanaged, do not reflect fees or expenses, and are not directly investable. Any forward-looking statements are not guarantees of future performance and involve risks, uncertainties, and assumptions. Investors should consult with a qualified financial professional before making any investment decisions.

***Some or all portions of this commentary were prepared with the assistance of artificial intelligence (“AI”) and large language models. The information generated by these tools has not been independently verified, and while reasonable care has been taken to ensure accuracy, Stonemark Wealth Management does not guarantee the completeness or reliability of any AI-assisted content. This material is provided for informational purposes only and should not be construed as individualized investment advice.