Weekly Market Report: December 19th, 2025

Equity markets took in a full calendar of economic reports to kick off Santa Claus rally season last week, struggling early but rallying toward the week’s end. Markets enjoyed a revival in AI momentum while non-U.S. developed and emerging markets dealt with a strengthening dollar to close the week down 1%. Bond yields and commodity markets both fell slightly on the week with oil prices closing down 1.4% to $56.66/barrel.

Financial Market Highlights

• U.S. equity markets remained buoyant entering Santa Claus rally season with positive AI sentiment combining with economic reports feeding into the Fed accommodation narrative.
•  The S&P 500 stands a mere 1.24% below its record high but bond yields have been more stubborn than expected despite Fed rate cuts, falling inflation, and little financial stress. A simple OLS model from Bianco Research suggests 10yr yields should be closer to 3.22%, not 4.15%.

Economic Highlights

• A busy economic calendar last week brought indications of cooling inflation, retail sales, and labor markets, offset by expansionary readings from PMI surveys.

Bullish Asset Allocation Narratives

• Strong consumption with ample room for the consumer to re-lever and market related wealth effects.
• Growth conducive policies including an incrementally less restrictive Fed, OBBB fiscal stimulus, and business friendly 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, questionable circular AI transactions, unknown AI monetization potential, and a transition to debt financed capital spending and 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.

Weekly Market Report: November 21st, 2025

Equity markets tried to take an overdue breather last week with earnings season largely behind us and inflation/FOMC dynamics taking on renewed focus. Despite some mid-week jitters, equity markets closed the week relatively flat with value outperforming growth domestically and international developed (+1%) and emerging (+0.75%) both posted stronger gains thanks to a weak USD (-0.31%). Interest rates inched higher across the curve, taking the 10yr back up to 4.14% to close the week.

Financial Market Highlights

• U.S. equity market saw more consolidation last week with monetary policy and a slow reboot of economic data acting as the primary drivers.
• The past week of Bitcoin and Ethereum wiping out all of 2025 gains reminds investors of the massive swings crypto can bring which includes 10+ declines of 25%, 6 of 50%, and 3 of 75%.
• Large UST auctions, including a $48.5b 10yr issue, over the past two weeks have reinforced competing narratives of market complacency and long-term fiscal profligacy.

Economic Highlights

• The K-shaped recovery has several plausible explanations including a robust stock market, low household debt, anemic job prospects, and challenging affordability.

Bullish Asset Allocation Narratives

• Growth conducive policies including an incrementally less restrictive Fed, OBBB fiscal stimulus, and business friendly deregulation.
• A healthy consumer with room to re-lever thanks to lower debt levels and higher net worth.
• Exceptional U.S. corporate earnings growth, profit margins, and forward guidance.
• Fading tariff levies and trade policy uncertainty.
• The AI boom including substantial capex, expected productivity gains, and earnings potential.

Bearish Asset Allocation Narratives

• Risks to consumption due to elevated interest rates, sluggish labor markets, tariff-related demand destruction, and cumulative inflation.
• Monetary policy mistake from the Fed overstaying restrictive policy despite labor market stress.
• Fading (TCJA, pandemic stimulus, OBBB) U.S. fiscal thrust beyond Q2’26 with clear market and political constraints on continuing elevated deficit spending.
• Narrow market reliance on AI stock momentum and aggressive capital spending amidst eyebrow raising circular investment and high valuations/earnings expectations.

Weekly Market Report: November 14th, 2025

Equity markets tried to take an overdue breather last week with earnings season largely behind us and inflation/FOMC dynamics taking on renewed focus. Despite some mid-week jitters, equity markets closed the week relatively flat with value outperforming growth domestically and international developed (+1%) and emerging (+0.75%) both posted stronger gains thanks to a weak USD (-0.31%). Interest rates inched higher across the curve, taking the 10yr back up to 4.14% to close the week.

Financial Market Highlights

• With encouraging 3Q earnings growth of 14.5% now in the rearview, equity markets looked more closely at the macro (inflation, labor) and monetary policy backdrop, translating to an upward drift on inflation/interest rates and a downward drift on Fed rate cut expectations.

Economic Highlights

• Absence of official inflation and jobs data drew attention to NFIB indications showing benign but stubborn inflation, weak sales expectations, and a stalling but not sharply deteriorating labor markets.
• BoA credit report reinforced the K-shaped recovery narrative with healthy consumer spending growth of 2.4% but barbelled in nature with anemic low income (0.7%) offset by strong high income (2.7%) spending. Wage growth eased unilaterally but was more pronounced in low-income deciles.

Policy Highlights

• The longest government shutdown on record ended last week but expectations are that data reliability and ripple effects will take some weeks to normalize.
• Ample Fed speak last week reinforced a cautious and uncertain path for monetary policy given absence of data and a lack of consensus going forward.
• An important and market impactful distinction on the SCOTUS ruling on POTUS use of IEEPA for tariff levies is whether refunds are mandated or not.

Bullish Asset Allocation Narratives

• Productivity and the AI boom are complimented by strong earnings and persistent growth.
• Growth conducive policies across the monetary, fiscal, and regulatory landscape including a dovish Fed, stimulative fiscal budget deficits, and business friendly deregulation initiatives.
• Fading tariff policy uncertainty with administration officials aggressively pursuing trade deals and a potential judicial branch check on the executive branch use of the IEEP Act to levy trade taxes.

Bearish Asset Allocation Narratives

• A monetary policy mistake by the Fed given the complex and abnormal level of distortion stemming from historic tariffs, immigration policies, and pandemic aftereffects on inflation and labor markets.
• Narrow market reliance on AI stock momentum including aggressive free cash flow spending trends, surging capex, eyebrow raising circular investment, and high valuation/earning expectations.
• Risks to consumption given normalized interest rates, low growth labor markets, cumulative inflation effects, and a fatigued consumer balance sheet.
• Tariff levies moving to multi-decade highs and associated pressure on inflation and profit margins.

Weekly Market Report: November 1st, 2025

Recommended equity market positioning continues at a policy neutral stance with an expectation that we may see some routine consolidation given labor market dynamics and the nature of this narrow/modestly overbought market. Healthy earnings, accommodative policy, and resilient consumption are reinforcing a stay the course message. From a fixed income perspective, bond yields have remained rangebound, and we see no compelling evidence of that changing in the near term, so we are maintaining a neutral stance accordingly.

Financial Market Highlights

• Earnings reports re-confirmed massive, big tech capex intentions while circular AI relationships and index concentration issues continue to garner the ire of seasoned investors. 
• Corporate earnings for Q3 are on pace for another strong season with 10%+ growth. Importantly, the blended 12.8% profit margin is above the figure from one year prior and handily above the five-year average.

Economic Highlights

• Supports to consumer spending remain intact for both higher income (wealth effect) and lower income (gig economy) cohorts. To add, Federal workers should get back pay, and stimulative monetary/fiscal policies are on the horizon.
• Questions surround to whether the weakness in the labor market can be countered by the AI-driven economic growth and productivity boom.

Policy Highlights

• The FOMC continued its rate cutting campaign in October by delivering another 25bps cut. Notably, the FOMC called an end to its balance sheet reducing QT program due to signs of strained liquidity in the banking system.
• The U.S. government shutdown continued through October with primary debates still squarely focused on spending disputes surrounding enhanced ACA tax credits, Medicaid and SNAP.

Bullish Asset Allocation Narratives

• Productivity and the AI boom are complimented by strong earnings and persistent growth.
• Growth conducive policies across the monetary, fiscal, and regulatory landscape including a dovish
  Fed, stimulative fiscal budgets deficits, and business friendly regulation.
• Fading tariff policy uncertainty with administration officials aggressively pursuing trade deals and
  a potential judicial branch check on the use of the IEEP Act to levy trade taxes.

Bearish Asset Allocation Narratives

•  A Fed policy error amid inflation and labor distortions from tariffs, immigration limits, and pandemic aftershocks 
• Market concentration in AI momentum stocks marked by heavy FCF burn, soaring capex, circular investments, and lofty valuations.
• Consumer risk from higher rates, weak labor growth, lingering inflation, and strained balance sheets

Weekly Market Report: October 17th, 2025

Markets last week remained in a partial economic data vacuum due to the government shutdown but still had the first batch of third quarter earnings reports, ample Fed speak, and some subtle AI and credit undertones to shape trading. The week began with an S&P 500 recovery rally that held on for a 1.7% gain and international developed (+2.5%) and emerging (+4.3%) participated and benefitted from a weaker USD (- 0.55%). Bond yields fell, reflecting slowing growth and perhaps echoed some credit and AI momentum
concerns.

Financial Market Highlights

• Third quarter earnings season kicked off last week on sound footing with a 7.5% bottom line expectation on positively skewed guidance and modest upward street revisions. 
• Signs of credit stress at U.S. regional banks (ZION , WAL ) kept percolating last week. While equity markets have remained relatively sanguine, global high yield spreads have begun to widen.

Economic Highlights

• An Atlanta Fed 3.9% Q3 GDP forecast would typically coincide with accelerating employment yet the consensus outlook is currently centered on a decelerating growth outlook with capital expenditures , personal consumption, and the housing market; all key questions going forward.
• Sell side analysis of state level unemployment claims fell from 235k to 217k last week and thanks to social security statutory requirements, markets will get a CPI reading on Friday.

Policy Highlights

• With no resolution in sight on the government shutdown, the economic data vacuum continues.
• China is maintaining two trade war fronts with the Dutch government blurring the business and national security line further last week by taking control of a Chinese owned semiconductor company, Nexperia, due to “serious governance shortcomings.” This in addition to recent U.S./China narratives.
• New research from Alvarez & Marshall suggests deregulation in the banking sector is set to unlock a significant amount of lending capacity, boosting both EPS and ROE across the industry.

Bullish Asset Allocation Narratives

• AI momentum, healthy earnings and persistent growth continue against a relatively liquid backdrop.
• Monetary, fiscal, and regulatory policies including a dovish leaning Fed, business friendly deregulation, and front end loaded deficit spending package are all supportive for risk assets
• Tariff tax policy uncertainty is fading with administration officials aggressively pursuing

Bearish Asset Allocation Narratives

• Market reliance on AI momentum coupled with skepticism surrounding circular AI driven capex, realized productivity enhancements, and associated valuation/earnings considerations.
• A monetary policy mistake by the Fed of loosening too quickly given above target inflation, resilient growth, and persistently low unemployment.
• Risks to consumption given normalized interest rates, low growth labor markets, and a fatigued consumer balance sheet.
• Tariff levies moving to multi-decade highs and associated pressure on inflation, profit margins, and consumers with longer-term implications on growth, trade, and consumption.