December 2025 Monthly Market Update

U.S. equities finished the month of December relatively flat but closed 2025 with a third consecutive double-digit return, a rare occurrence. U.S. equity market leadership in December continued the rotation we saw in November where value outperformed growth as AI momentum-oriented stocks gave way to traditional value-oriented sectors and overall market breadth improved. Non-U.S. equities wrapped 2025 in strong fashion with both developed and emerging markets up as solid 3% in December and over 30% on the year. Of note is that while 2025 delivered the widest margin of international stock outperformance relative to U.S. since 1993, excluding currency impacts, the 14% calendar year international stock advantage narrows to less than 3%. Bond markets lost a little ground in December as interest rates edged slightly higher but, like stocks, turned in a strong year with the Aggregate Bond index up 7.3% and Municipal index 4.2%, both aided by declining interest rates and a restart of the Fed easing campaign. Commodity markets wrapped up a crazy 2025 with tariffs, geopolitics, and demand drivers translating to big volatility drivers throughout the year. December saw energy prices fall 9%, but industrial and precious (gold, silver) metals move higher, putting an exclamation mark on impressive annual gains of 21% and 80%, respectively.

Economic data slowly started to flow again following the end of the government shutdown in mid-November, but December was a restart month with lagged data and missed releases leaving some blind spots. Overall, economic data continued to point to a slowing but still resilient expansion. Labor market indicators remained mixed, reflecting a continuation of low hires low fires environment, with no material deterioration evident as unemployment is registering only 4.4%. Inflation is trending at 2.7% reinforcing the disinflation narrative. The year-over-year rate of change has continued to moderate, even as the cumulative impact of inflation since 2022 remains a challenge for lower- and middle-income households. U.S. GDP growth for the third quarter registered a strong upside surprise at 4.3% with consumer spending and AI investment the key drivers. Spending was concentrated in July/August and has been supported by higher-income cohorts and ongoing wealth effects, while interest-ratesensitive sectors such as housing remained constrained by affordability pressures tied to elevated prices and mortgage rates. Business surveys presented a mixed picture, with services activity holding steady and manufacturing closer to stall speed.

Monetary policy remained a key focus in December with the FOMC delivering a third consecutive 25bps rate cut after re-starting the easing campaign back in September. Fed communications throughout the month underscored internal debate around the appropriate pace of easing, balancing signs of labor market cooling against continued progress on inflation. Ever-present tariff tax policy was also in focus as the year concluded with a growing list of exemptions and exceptions and anticipation of an early January SCOTUS ruling on constitutional legality of executive branch use of IEEP to apply the levies. Fiscal policy was predictably quiet into year-end, though longer-term discussions around deficits, debt sustainability, and the fading impulse from prior fiscal support continued to frame the broader policy backdrop. As we begin the new year, a look back at 2025 reminds investors what markets tend to focus on as they looked right past a redux of 1930’s style tariffs, a record long government shutdown, a continuation of significant federal deficit spending, and ample geopolitical flares, instead latching into booming AI momentum, resilient GDP growth, accommodative policies, and robust corporate earnings.