December Markets Wrap: Key Trends as 2026 Begins
Broader Market Strength Shows Late‑Year Momentum
December closed out a year defined by moderating price pressures, steady support from the Federal Reserve, and resilient equity markets. Gains extended beyond the mega‑cap and AI‑focused leaders that dominated for most of the year, with a wider range of companies advancing as investors headed into 2026.
Mixed Results Across Major U.S. Indexes
Market performance varied throughout the month. The S&P 500 finished essentially flat after a strong annual run, while the Nasdaq 100 saw modest declines following earlier leadership from AI and semiconductor names. The Dow outperformed, as year‑end flows favored more defensive industrial stocks.
The S&P 500 ticked lower by 0.05%, the Nasdaq 100 dipped 0.73%, and the Dow gained 0.73%.
Inflation Continues to Ease
The November CPI report showed headline inflation at 2.7% year‑over‑year, its lowest reading since mid‑year and slightly below expectations. Core CPI rose 2.6%, with shelter, medical care, and household furnishings contributing to still‑firm core services. Monthly increases for both headline and core remained below consensus, supporting a continued disinflation trend.
Fed Decisions Highlight a Careful Balancing Act
The December 10th FOMC meeting delivered a third 25‑basis‑point cut, bringing the federal funds target to 3.50%–3.75%. Policymakers described growth as “moderate” and inflation as “somewhat elevated,” with increased attention on labor‑market softness. Updated projections pointed to a gradual easing path, with only a small number of cuts anticipated over the next several years.
Minutes released at the end of December reflected a divided committee, with disagreements centered on whether inflation progress justified continued easing or whether employment risks required a more cautious stance.
Labor Market Shows Signs of Cooling
The unemployment rate rose to 4.6% in November, and the Fed acknowledged a shift toward better balance in the labor market. Payroll growth slowed to 64,000, well below the year’s monthly average. Healthcare and construction added jobs, while transportation, warehousing, and consumer‑facing categories posted losses—consistent with a cooler hiring environment.
Services Hold Firm While Manufacturing Contracts
Services continued to support overall economic activity. The ISM Services PMI held at 52.6, marking its ninth straight expansion reading. Business activity and new orders strengthened, though the employment subindex remained below 50, indicating slower hiring.
Manufacturing painted a weaker picture. The ISM Manufacturing PMI slipped to 48.2, pointing to ongoing contraction driven by soft export demand and continued inventory adjustments across the goods sector.
Looking Ahead to 2026
Entering the new year, many major strategists maintain expectations for a soft landing, supported by modest growth, ongoing disinflation, and a measured pace of future rate cuts. For long‑term, diversified investors, the themes remain familiar: staying invested, maintaining balance across growth and high‑quality income, and using periods of volatility as opportunities rather than disruptions.
If you have questions about what these developments may mean for your portfolio, we encourage you to reach out to our financial team for personalized guidance and support.