December’s Markets Mark a Steady Finish to a Dynamic Year

A Broader Finish to the Year’s Market Story

December closed out a year defined by steady disinflation, a supportive Federal Reserve, and equity markets that continued to hold firm. As the month progressed, leadership widened beyond the year’s well‑known AI‑focused names, with more sectors participating in the market’s advance. This broader strength offered a more balanced backdrop heading into 2026.

Mixed Results Across Major U.S. Indexes

Market performance varied meaningfully in December. The S&P 500 finished the month nearly unchanged after a strong annual climb. The Nasdaq 100 eased back as investors took profits following its long stretch of outperformance tied to AI and semiconductor momentum. Meanwhile, the Dow gained ground, helped by renewed interest in more defensive industrial shares as the year wrapped up.

The S&P 500 slipped 0.05%, the Nasdaq 100 declined 0.73%, and the Dow Jones Industrial Average rose 0.73%.

Fed Policy Balances Slowing Growth and Cooling Inflation

The December 10 Federal Open Market Committee meeting resulted in a third straight 25‑basis‑point cut, bringing the policy rate to 3.50%–3.75%. Policymakers described growth as “moderate,” job gains as “slowed,” and inflation as “somewhat elevated,” reflecting a more even focus between price stability and labor‑market risks.

The accompanying projections outlined a gradual easing path, with only limited cuts anticipated over the next several years and inflation edging closer to 2%. Minutes released at month-end showed a divided committee, noting a closely debated decision shaped by differing views on how durable recent disinflation has been.

Inflation Trends Continue to Ease

November inflation data pointed to further cooling. Headline CPI rose 2.7% year-over-year—its lowest reading since mid‑year—while core CPI increased 2.6%. Shelter and medical costs continued to rise, but monthly gains for both headline and core indexes came in below expectations. Despite a pickup in gasoline prices, broader categories showed ongoing moderation, supporting the month’s softer inflation narrative.

Labor Market Slows but Remains Stable

The unemployment rate inched up to 4.6% in November, prompting Fed officials to describe the labor market as moving toward better balance. Payroll growth slowed to 64,000 for the month, reflecting a cooling trend. Hiring remained concentrated in healthcare and construction, while industries tied to transportation, goods movement, and consumer services saw declines.

Services Stay Resilient as Manufacturing Contracts

The services sector continued to expand in November, with the ISM Services PMI holding at 52.6. Business activity and new orders signaled ongoing strength, though the employment component stayed below the expansion threshold. Manufacturing faced a more challenging environment, as the ISM factory index slipped to 48.2, highlighting continued contraction and weaker export demand.

Looking Ahead to 2026

As the new year begins, expectations among major strategists continue to center around a soft‑landing scenario supported by modest economic growth, inflation gradually moving toward target, and a measured pace of rate cuts. For long‑term investors, the broader themes remain consistent: maintaining balance, staying invested, and using market fluctuations as potential opportunities rather than reasons to shift course.

If you have questions about what these trends may mean for your personal financial plan, our financial team is here to help with tailored guidance and support.