December Market Wrap-Up: A Year-End Look at Key Trends

Broadening Market Leadership

December closed out a year marked by moderating price pressures, a supportive Federal Reserve, and steady equity markets. As the month progressed, market leadership widened beyond the well-known AI-driven names that had dominated much of the year. A more diverse group of companies participated in the month’s gains, reflecting a broader and more balanced backdrop heading into 2026.

Fed Signals a Gradual Path

The Federal Reserve’s early‑December meeting delivered another quarter‑point rate cut, bringing the federal funds target range to 3.50%–3.75%. Policymakers described growth as “moderate,” job gains as having “slowed,” and inflation as “somewhat elevated.” Updated projections suggested a shallow easing cycle extending over the next several years, with rates expected to stabilize in the low‑3% range. Minutes released at the end of the month showed the decision was closely debated, underscoring the careful balance between inflation risks and labor market softness.

Labor Market Shows Signs of Cooling

Hiring momentum eased as November’s unemployment rate rose to 4.6%. Payroll growth of 64,000 pointed to a slower trend compared with earlier in the year. While healthcare and construction continued to add workers, several goods‑related and consumer‑facing industries pulled back. Analysts described the environment as one where job openings have normalized but layoffs remain restrained, contributing to a more balanced labor landscape.

Inflation Trends Continue to Improve

Inflation data for November supported continued disinflation, with headline CPI at 2.7% year‑over‑year and core CPI at 2.6%. Both readings came in below expectations. Shelter, medical care, and household furnishings rose at modest annual rates, while energy’s monthly gain was offset by easing momentum in key service categories. Overall, the data reinforced a cooling trend without overstating progress.

Divergent Index Performance

Major U.S. benchmarks moved in different directions during December. The S&P 500 was nearly flat, the Nasdaq 100 saw modest declines after a strong year led by AI and semiconductor strength, and the Dow posted gains as investors sought more defensive industrials. These divergences highlighted shifting sector preferences as the year drew to a close.

Services Remain Resilient, Manufacturing Contracts

The services economy continued to expand, with the ISM Services PMI registering its ninth straight month above 50. Business activity and new orders remained solid, though hiring within the sector slowed. Manufacturing, by contrast, stayed in contraction territory as export demand softened and firms continued to draw down inventories.

Looking Ahead

As 2026 begins, strategists broadly expect a soft‑landing environment supported by modest growth, continued progress on inflation, and a gradual pace of Fed easing. For long‑term investors, the themes remain steady: staying invested, maintaining balance across asset classes, and using periods of volatility as opportunities to reinforce discipline rather than shift course.

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