A late-cycle backdrop defined December, closing out a year shaped by easing price pressures, supportive monetary policy, and steady equity markets. This environment helped maintain the prevailing soft‑landing outlook as we moved toward 2026.

Market Leadership Broadens

As the year wrapped up, performance widened beyond the well‑known mega‑cap and AI‑driven names. A broader mix of companies participated in December’s gains, pointing to a more balanced market tone heading into the new year.

Mixed Moves Across Major Indexes

Major U.S. stock averages diverged throughout the month. The S&P 500 ended essentially unchanged after a strong annual run, while the Nasdaq 100 eased as some investors took profits following a year led by AI and semiconductor strength. The Dow outperformed, supported by flows toward more defensive industrial names.

The S&P 500 ticked lower by 0.05%. The Nasdaq 100 dipped 0.73%. The Dow gained 0.73%.

Fed Cuts Again as Debate Deepens

The December 10th FOMC meeting delivered a third straight 25‑basis‑point cut, bringing the target range to 3.50%–3.75%. Officials described growth as “moderate,” job gains as having “slowed,” and inflation as still “somewhat elevated.” Updated projections signaled a gradual easing path with only limited cuts penciled in through 2027.

Minutes released December 29th revealed a 9–3 vote, highlighting differing views on whether disinflation had proven durable enough to justify continued easing. The decision was described as “finely balanced.”

Inflation Moves Lower

November CPI data showed further cooling. Headline inflation rose 2.7% year over year, and core increased 2.6%. Shelter, medical care, and household furnishings contributed to still‑firm core services, yet monthly readings came in lighter than expected. Despite a jump in gasoline prices, moderating shelter and core services supported a good disinflation narrative.

Labor Market Shows Strain

The unemployment rate rose to 4.6% in November, prompting the Fed to characterize the labor market as moving toward “better balance.” Payrolls grew by 64,000, below the year’s average, with hiring concentrated in healthcare and construction while transportation, warehousing, and consumer‑facing sectors shed jobs.

Services Hold Up as Manufacturing Contracts

Services activity continued to expand, with the ISM Services PMI at 52.6 for a ninth month, though the employment component remained below 50. Manufacturing softened further: the ISM reading slid to 48.2, marking another contraction amid weak export demand and inventory reductions.

Looking Ahead to 2026

Strategists continue to expect a soft‑landing backdrop supported by modest growth, inflation drifting closer to 2%, and a measured pace of policy easing. For long‑term investors, the focus remains on staying invested, keeping balance between growth and income, and viewing market fluctuations as opportunities rather than disruptions.

If you’d like to understand how these developments may affect your financial plan, our team is here to help with personalized guidance and support.