Market Recap: December 2025

Market commentary

• U.S. real GDP grew at 4.3% annualized in Q3 2025, the fastest in two years, with fourth quarter GDP tracking near 3.0% growth despite prior government shutdowns.
• The Federal Reserve cut interest rates by 0.25% on December 10, its third reduction in 2025, and now appears close to a neutral policy stance.
• Consumer spending continues to drive GDP growth, maintaining an upward trend despite 2025 tariff-related volatility, supported by strong employment, 4% wage gains, credit availability, and solid holiday sales.
• Credit card balances and “buy now, pay later” programs are rising, suggesting some consumers — especially in lower-income groups — are increasingly relying on credit to sustain spending.

Select economic and market data

Equities

• Despite modest declines in the Nasdaq and Russell 2000, U.S. stocks held firm in December, ending the year strongly positive for the third consecutive year.
• International stocks continue to benefit from a weakening U.S. dollar, which fell nearly 10% last year versus a basket of global currencies.

Fixed income

• Although the Fed cut rates, intermediate and long-term yields climbed in December, with 10-year Treasuries reaching 4.17%, reflecting inflation concerns, while money market yields continued to decline.
• Rising rates drove mostly negative returns for longer-duration fixed income indices, while shorter high-yield bonds delivered positive performance.

Strategic outlook

• Some caution warranted on equities in the near-term, particularly in large-cap stocks with above-average valuations; currently favoring small-cap and mid-cap domestic stocks longer-term.
• Near-average expected returns projected for fixed income with the Fed on pause and rates reflective of economic conditions.
• Above-average volatility is likely given central bank involvement and geopolitical uncertainty.