December Markets Steady as 2025 Closes Out

December wrapped up a year marked by steady moderation in inflation, supportive Fed policy, and resilient equity performance. This late‑cycle environment set the tone for a balanced finish, with broader participation across the market as more companies joined in the year‑end climb beyond the well‑known AI‑driven leaders. As we turn toward 2026, here’s a look back at how the month unfolded and the developments that shaped the close of 2025.

Market Performance: Mixed but Stable

Major U.S. stock indices moved in different directions during December. After a strong year overall, the S&P 500 was nearly flat for the month. The Nasdaq 100 saw some pullback following profit‑taking in technology and semiconductor names. Meanwhile, the Dow ended higher as investors favored more defensive industrial stocks heading into year‑end.

Fed Updates: Gradual Easing and Divided Views

The December 10th FOMC meeting included a third 25‑basis‑point rate cut, bringing the federal funds target to 3.50%–3.75%. Policymakers described a mix of moderate growth, slower hiring, and inflation that remains somewhat elevated. Projections pointed to a shallow easing cycle, with only a few additional cuts expected over the next several years and inflation trending gradually toward 2%. Meeting minutes later showed a split vote, highlighting ongoing debate around the durability of disinflation and risks to employment.

Cooling Inflation Signals

November’s CPI report showed headline inflation easing to 2.7% year over year, the lowest level since mid‑year. Core CPI rose 2.6%, reflecting continued cooling, though core services—including shelter and medical care—remained firm. Monthly increases for both headline and core measures came in below expectations, supporting a steady disinflation narrative heading into 2026.

Labor Market Slows Further

The unemployment rate rose to 4.6% in November, prompting the Fed to shift its focus more toward potential employment risks. Job openings have returned to more normal levels, while layoffs remain historically low. Payroll growth slowed substantially to 64,000, with gains concentrated in healthcare and construction. Sectors tied to transportation, warehousing, and consumer activity continued to pull back.

Service Strength vs. Manufacturing Contraction

Service‑sector activity remained an area of stability. November’s services PMI held at 52.6, marking a ninth consecutive month of expansion. Business activity and new orders stayed in growth territory, though hiring pressures persisted with an employment reading below 50.

Manufacturing, however, continued to contract. The factory index declined to 48.2, reflecting ongoing weakness in exports and efforts by firms to reduce inventories. This contrast between solid services activity and a softer goods sector remained a defining characteristic of the economic landscape.

Looking Ahead to 2026

As the new year begins, broad expectations center around a soft‑landing scenario—moderate growth, inflation moving closer to the Fed’s target, and a careful pace of policy easing. For long‑term investors, familiar themes continue to apply: maintaining diversification, balancing growth with quality income, and viewing volatility as an opportunity rather than a signal to shift course.