December’s Market Trends and the Road Ahead

December closed out the year with a mix of easing price pressures, steady support from the Federal Reserve, and durable equity markets—an environment consistent with a late‑cycle backdrop. Together, these dynamics helped maintain expectations for a potential soft landing as we approach 2026.

Broader Market Participation Emerges

Market leadership shifted meaningfully during the month. While the “Magnificent 7” and AI‑focused companies continued to play an important role, gains spread more widely across sectors in December. This broadening beyond mega‑cap technology suggested a healthier and more balanced market tone heading into the new year.

How Major U.S. Indices Performed

Major U.S. averages moved in different directions in December. After a strong showing throughout the year, the S&P 500 finished the month nearly flat. The Nasdaq 100 gave back some ground as investors took profits in some of the year’s top performers. Meanwhile, the Dow outpaced its peers, supported by interest in more defensive, industrial‑linked companies.

The S&P 500 edged slightly lower by 0.05%. The Nasdaq 100 declined 0.73%. The Dow Jones Industrial Average added 0.73%.

Fed Meeting Highlights and Policy Signals

The December 10th Federal Open Market Committee meeting delivered another 25‑basis‑point cut, bringing the federal funds target range to 3.50%–3.75%. Policymakers described growth as “moderate,” hiring as having “slowed,” and inflation as “somewhat elevated,” marking a shift toward balancing inflation concerns with signs of labor market softening.

The Summary of Economic Projections pointed to a gradual easing path with only a few additional cuts projected through 2027. Growth expectations remained modest, and core inflation trended toward 2%, reinforcing a slow‑moving adjustment rather than a sharp economic break.

Meeting minutes released December 29th showed a 9–3 split—the widest disagreement since 2019. Officials debated whether easing policy could risk renewed inflation or whether maintaining rates might weigh too heavily on employment. The decision was described as “finely balanced,” reflecting differing assessments of the durability of disinflation.

Inflation Trends Continue to Ease

The November Consumer Price Index showed headline inflation at 2.7% year over year, below expectations and the lowest reading since mid‑year. Core inflation rose 2.6%, with shelter, medical care, and household furnishings contributing to still‑firm services inflation. Monthly increases of 0.3% for headline CPI and 0.2% for core both landed below consensus.

Shelter inflation ran at 3.6% year over year, while gasoline prices rose 4.1% for the month. Even so, moderating momentum across shelter and core services supported a constructive disinflation narrative.

Labor Market Shows Signs of Cooling

The unemployment rate rose to 4.6% in November from 4.4%, prompting the Fed to shift its messaging to emphasize employment‑related risks. Analysts described current conditions as a low‑hiring, low‑firing environment—job openings have normalized, and layoffs remain low by historical standards.

Payrolls increased by 64,000 in November, falling short of the 2025 monthly average. Healthcare and construction posted gains, while transportation, warehousing, and consumer‑focused industries saw declines.

Contrasting Conditions in Services and Manufacturing

The services sector remained a key source of support. The ISM Services PMI held at 52.6 in November, marking its ninth consecutive month of expansion. Business activity and new orders stayed in growth territory, though the employment component remained below 50, signaling slower hiring.

Manufacturing continued to contract. The ISM Manufacturing Index fell to 48.2, its weakest reading in four months, as firms cited softer export demand and inventory adjustments—an ongoing goods‑sector slowdown alongside steady services activity.

Looking Toward 2026

As the new year begins, major strategists broadly expect a soft‑landing scenario shaped by moderate growth, inflation moving closer to target, and a measured pace of additional Fed cuts. For long‑term, diversified investors, the key themes remain the same: staying invested, maintaining balance between growth and quality income, and viewing periods of volatility as potential opportunities.

If you have questions about how these developments may relate to your financial strategy, our team is here to help you navigate the path ahead with personalized guidance and support.