Weekly Market Report: December 19th, 2025
Last week markets took in a relatively busy economic calendar, earnings/M&A optimism from the corporate sector, and some housing market policy indications. The S&P 500 closed up 1.6%, setting a new record high and delivering a third positive weekly close over the past four, while continuing to exhibit improved underlying breadth. Developed and emerging equity markets also posted strong gains of 1.8% and 1.6% respectively despite a strengthening USD. Bond yields were relatively unchanged on the week.
Financial Market Highlights
- Value and non-U.S. stocks have begun the year slightly ahead of U.S. and growth stocks with strategist projecting a continued rotation from tech to non-tech sectors looking forward.
Economic Highlights
- Economic data last week was centered around health of the labor market, including a low hires-low fires December jobs report, official survey data, and private sector measures. Taken together, the data confirm tepid demand and an overall mixed outlook with a low hiring, low firing backdrop.
- Growth forecasts continue to paint a constructive picture of overall U.S. economic activity with Q4 model estimates from the NY Fed of 2.6 % and Atlanta Fed of 5.1% and Q1 of 2.6% (NY Fed).
Bullish Asset Allocation Narratives
- Strong consumption with ample room for the consumer to re-lever and market related wealth effects.
- Growth conducive policies including a less restrictive Fed, fiscal stimulus, and deregulation.
- Robust U.S. corporate earnings growth, profit margins, and forward guidance.
- An AI boom including substantial capex and longer-term productivity gains/earnings potential.
Bearish Asset Allocation Narratives
- Risks to consumption due to lower/middle class price fatigue (cumulative inflation), higher interest rates (sluggish housing market), and slowing labor markets.
- Reliance on AI stock momentum and capex with unknown ROI and monetization potential alongside circular transactions, debt financed expenditures, and a pivot to asset intensive business models.
- Tariff and immigration policies introducing longer-term structural headwinds on aggregate demand, trade, and hiring alongside shorter-term goods inflation and sectoral level labor inflation.
- Fed policy mistake of being too restrictive (or accommodative) given labor and inflation dynamics.
- Fading U.S. fiscal thrust beyond Q3’26 with constraints on continuing elevated deficit spending.
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