Market Commentary – December 2025
This post was originally published on this site.
as of 12.31.2025
- The Santa Claus rally ghosted Wall Street as stocks slipped in the final days of December. The S&P 500 Index returned a paltry 0.06% in December. Nevertheless, this marked the eighth consecutive positive month for the broad index. The Growth Index was negative for the second consecutive month at -0.18% while Value saw a 0.35% positive return.
- Once again, the S&P 500 Equal Weight Index outperformed the market-cap weighted index – this time by 0.38% – as investors have looked for opportunities away from the mega caps.
- Nvidia Corp, Tesla Inc, and Micron Technology Inc were the top three contributors to return for the S&P 500 in December whereas Broadcom Inc, Apple Inc, and Microsoft Corp were the biggest detractors.
- For the year, equity performance was quite strong with the S&P posting a total return of 17.86% and the Nasdaq delivering 21.17%. Both, however, were bested by international equities, as the MSCI EAFE Index returned 32.03%, marking the first time since 2017 that the EAFE has outperformed the S&P.
- Bond returns were mixed for the month with the U.S. Intermediate Aggregate Bond Index and Municipal Bond Index posting positive returns of 0.13% and 0.09%, respectively. Meanwhile, the U.S. Treasury Index declined 0.33%. For the year, bonds saw positive returns across all three indices: U.S. Intermediate Agg (+7.45%), U.S. Treasury Index (+6.32%), and Municipal Bond Index (+4.25%).
- Gold experienced a tremendous 64.58% return in 2025, marking its best performance since 1979 (the current annual record, at 126%). The 1970’s were characterized by high inflation and low growth (stagflation), making the yellow metal a popular hedge against the erosion of purchasing power. Black gold (oil), on the other hand, was down for the fifth consecutive month, falling 1.93% for December and 19.94% for the year.
- Hot chocolate lovers can rejoice, as sugar and cocoa prices fell 22% and 48%, respectively, over the course of the year.
- The Federal Reserve cut interest rates by 25 basis points (bps) again, bringing the cumulative rate cuts to 75 bps and the target rate down to 3.50%-3.75%. Three dissenting votes highlighted diverging views: two governors (Goolsbee and Schmid) favored no cut while the third (Miran) again lobbied for a 50-bps reduction. The “extent and timing of additional adjustments” in the FOMC statement suggests that bar for near-term easing is now higher.
- Post-government shutdown data remains under scrutiny, as the recent data release delivered mixed and incomplete signals. Hiring continues to appear sluggish, averaging 22k jobs per month over the past three months compared with a +111k average at the start of the year. Meanwhile 3Q GDP surprised to the upside, growing 4.3% versus a 3.3% market expectation.
- Commercial office space is showing signs of recovery in certain markets after years of pressure since Covid. For example, New York City absorbed 4.5 million square feet in 3Q, the highest quarterly total since 2004, as employees return to offices.
- Cash became king at year-end, with money-market funds seeing large inflows. Total assets in U.S. money-market funds reached $7.73 trillion as of 12/30/25, setting a record and standing almost 14% higher than a year earlier.
- Existing home sales rose 0.5% in November, aided by slightly lower mortgage rates, improving supply, and moderated price appreciation. This marked the third consecutive monthly gain, though sales remain subdued at a 4.13 million-unit pace, compared with Covid-era peaks above 6.5 million units.
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This commentary reflects the views of MCM and should not be considered to be investment or financial advice. MCM does not warranty these views and will not update this communication after the date of publication. Any mention of specific securities is done for illustrative purposes and the securities mentioned may or may not be held in client accounts. No assumption or assurance should be taken that securities mentioned will be safe or profitable investments. Past performance is not indicative of future results
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Index Definitions
The S&P 500 (S&P 500) Total Return is a market capitalization-weighted index composed of the 500 most widely held stocks whose assets and/or revenues are based in the US; it’s often used as a proxy for the U.S. stock market. TR (Total Return) indexes include daily reinvestment of dividends.
MSCI EAFE Total Return Net is the Morgan Stanley Capital International Europe, Australia, and Far East index that is a market-capitalization-weighted index of 21 non-U.S. industrialized country indexes. The index includes net dividends reinvested minus-tax-credit calculations, but subtracts withholding taxes retained at the source for foreigners who do not benefit from a double taxation treaty.
The MSCI Emerging Markets (MSCI EM) Index captures large and mid cap representation across 27 Emerging Markets (EM) countries.
Bloomberg Municipal Bond Index Total Return Index Value Unhedged USD (Municipal Bond Index) covers the US-denominated long-term tax exempt bond market. The index has four main sectors: state and local general obligation bonds, revenue bonds, insured bonds and prerefunded bonds.
The Bloomberg Intermediate U.S. Aggregate Bond Index is a broad-based flagship benchmark that measures the performance of investment grade, U.S. dollar-denominated, fixed-rate taxable bond market with less than 10 years to maturity. The securitized sector includes Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS.
The federal funds rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. (1) The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective federal funds rate.(2) The effective federal funds rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the federal funds rate target. All Key Rates and Returns by Index are quoted out of Bloomberg.
The CPI Index represents changes in prices of all goods and services purchases for consumption by urban households. Retail Gas Prices are provided by AAA using data from up to 120,000 retail stations. West Texas Intermediate (WTI) crude oil is a specific grade of crude oil and one of the main three benchmarks in oil pricing, along with Brent and Dubai Crude.
Equity Returns by Sector are based on the GICS methodology. Return data are calculated by Bloomberg using constituents and weights as provided by Standard & Poor’s. Returns are cumulative total return for stated period, including reinvestment of dividends.
Chart Definitions
The Services and Manufacturing PMI from the Institute for Supply Management (ISM) is a composite index based on the diffusion indexes for four of the indicators with equal weights: Business Activity (seasonally adjusted), New Orders (seasonally adjusted), Employment (seasonally adjusted) and Supplier Deliveries. The Manufacturing PMI is a composite index based on the diffusion indexes of five of the indexes with equal weights: New Orders (seasonally adjusted), Production (seasonally adjusted), Employment (seasonally adjusted), Supplier Deliveries, and Inventories (seasonally adjusted). Diffusion indexes have the properties of leading indicators and are convenient summary measures showing the prevailing direction of change and the scope of change. An index reading above 50 percent indicates that the services economy is generally expanding; below 50 percent indicates that it is generally declining. Supplier Deliveries is an exception. A Supplier Deliveries Index above 50 percent indicates slower deliveries and below 50 percent indicates faster deliveries.
The PCE Price Index Excluding Food and Energy, also known as the core PCE price index, is released as part of the monthly Personal Income and Outlays report. The core index makes it easier to see the underlying inflation trend by excluding two categories – food and energy – where prices tend to swing up and down more dramatically and more often than other prices. The core PCE price index is closely watched by the Federal Reserve as it conducts monetary policy. The PCE price index, released each month in the Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers in the United States. Quarterly and annual data are included in the GDP release.
Total Nonfarm, commonly known as Total Nonfarm Payroll, is a measure of the number of U.S. workers in the economy that excludes proprietors, private household employees, unpaid volunteers, farm employees, and the unincorporated self-employed. This measure accounts for approximately 80 percent of the workers who contribute to Gross Domestic Product (GDP).
The diffusion non-farm payrolls chart are based on the percent of industries with employment increasing plus one-half the industries unchanged employment, where 50% indicates an equal balance between industries with increasing and decreasing employment.
Disclaimer
This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose in any jurisdiction. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit, and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their financial situation and investment profile. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investments involve risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yields are not reliable indicators of current and future results. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.
Past performance does not guarantee future results. Diversification does not guarantee investment returns and does not eliminate the risk of loss.
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