December Market Review

December market review

For the
third consecutive year – and sixth among the past seven – the S&P 500
tallied double-digit gains – a remarkable run. As the index climbed 16.39% for
the year, it also recorded 38 new record highs.

“We expect
technology tailwinds to continue into the new year but would caution against
investor complacency, as volatility may increase,” Raymond James Chief
Investment Officer Larry Adam said. “Earnings will take over from multiple
expansion as the engine powering equities in 2026. That means returns may go
from double digits to mid-single digits, but the growth environment is still
strong.”

Along with a
plethora of data releases once the government reopened, December saw markets
navigate the Federal Reserve’s (Fed) third consecutive interest rate cut of
2025. The Fed acted to support a cooling labor market amid persistently
elevated inflation, while noting that the recent government shutdown left
policymakers working with incomplete data. Division remains within the Fed as
some policymakers prioritize addressing labor market softness while others
caution against reigniting inflation.

The November
employment report showed just 64,000 new jobs, leading to the unemployment rate
rising to 4.6% – the highest since 2021 – with the Bureau of Labor Statistics
emphasizing uncertainty amid shutdown-related distortions. Inflation data and
third-quarter gross domestic product (GDP), released later than usual, offered
some relief. The November Consumer Price Index (CPI) rose 2.7% year-over-year,
and core CPI rose 2.6%, both cooler than expected. A gross domestic product
report showing 4.3% growth was much higher than expected.

Also in December:

·
After
lowering its benchmark rate to 3.50% – 3.75% from 3.75% – 4.00%, the Fed
signaled it anticipates just one more cut next year.

·
AI
stocks saw some pullbacks, but other parts of the market, including small caps,
hit new highs.

·
The
Treasury curve steepened as short-term rates dipped and the 10-year edged up.

·
Washington
lawmakers advanced a bipartisan housing affordability package.

·
Consumer
sentiment improved slightly but overall confidence remains mixed.

·
Japan raised interest rates, the UK lowered them and Europe held
steady.

The
bottom line

As we head
into 2026, the outlook is positive but not without challenges. Cooling
inflation and tech tailwinds offer reason for optimism, while a softer job
market and policy uncertainty may bring some volatility. After several years of
exceptional gains, returns could slow, but steady growth and healthy companies
suggest the foundation remains solid.

Pendle Hill
Advisors is proud to contribute to the Montgomery County News with our weekly
curated financial news and topics. If you have any questions about the markets,
your financial plan, or anything, please feel free to reach out to our office
for a no cost initial consultation.

Kent Pendleton, AAMS®

Financial Advisor, RJFS

Pendle Hill Advisors LLC

14375 Liberty St, Ste 109 |
Montgomery, TX 77356

T 936-297-8267

Kent.Pendleton@raymondjames.com | www.raymondjames.com/pendlehilladvisors

Material
created by Raymond James for use by its advisors. Securities
offered through Raymond James Financial Services, Inc. Member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial
Services Advisors, Inc. Pendle Hill Advisors is not registered broker dealers
and is independent of Raymond James Financial Services.

Investing
involves risk, and investors may incur a profit or a loss. All expressions of
opinion reflect the judgment of the Raymond James Chief Investment Officer and
are subject to change. There is no assurance the trends mentioned will continue
or that the forecasts discussed will be realized. Past performance may not be
indicative of future results. Economic and market conditions are subject to
change. Diversification does not guarantee a profit nor protect against loss.