Markets and Economy: A Look Back at December’s Trends

Broadening Market Leadership

December wrapped up a year defined by moderating price pressures, support from the Federal Reserve, and steady equity markets. As the month progressed, performance widened beyond the “Magnificent 7” and AI-related areas. A broader range of companies moved higher, reflecting a more balanced market landscape as we head into the new year.

Fed Discussions and Policy Direction

The December 10 Federal Open Market Committee meeting resulted in a third 25‑basis‑point cut, lowering the funds rate to 3.50%–3.75%. Policymakers described growth as “moderate,” job gains as having “slowed,” and inflation as “somewhat elevated.” Their projections pointed to a gradual easing path through 2027, with rates stabilizing in the low‑3% range and growth expectations near sub‑trend levels. Minutes released later in the month highlighted the close nature of the decision, noting differing views on the risks of cutting too quickly versus holding steady.

Labor Market Signals Shift

The labor picture showed additional signs of cooling. The unemployment rate moved to 4.6% in November, prompting the Fed to frame the labor market as having shifted toward “better balance.” Payrolls rose by 64,000, below this year’s average. While healthcare and construction added jobs, areas such as transportation, warehousing, and consumer‑facing industries saw declines.

Inflation Continues to Ease

November’s Consumer Price Index data showed headline inflation at 2.7% year over year, the lowest level since mid‑year and slightly below expectations. Core CPI increased 2.6%, with shelter, medical care, and household furnishings contributing to the monthly figures. Despite a monthly rise in gasoline, broader trends aligned with an ongoing disinflation narrative, supported by slower momentum in core services and shelter.

Services Stay Firm as Manufacturing Slips

The services sector continued to expand, with the ISM Services PMI reading 52.6 for the ninth straight month in expansion territory. Business activity and new orders both held above 50, though the employment index remained below that threshold. Manufacturing, however, stayed in contraction, with the ISM factory gauge falling to 48.2 as weak export demand and inventory reductions weighed on activity.

Index Movements Across the Markets

Major U.S. equity benchmarks diverged through December. The S&P 500 finished the month nearly unchanged after a strong year. The Nasdaq 100 saw a modest decline as some investors took profits following outsized gains in AI and semiconductor names. Meanwhile, the Dow rose as capital rotated into more defensive industrial sectors.

Looking Toward 2026

Entering the new year, the prevailing outlook among strategists points toward a soft landing supported by modest growth, inflation gradually easing toward 2%, and a measured pace of Fed rate adjustments. For long‑term investors, staying invested, maintaining balance across portfolios, and using periods of volatility constructively remain key themes.

If you have questions about how these developments may relate to your financial plan, our team is here to offer personalized guidance and support.