December 2025 Monthly Market Commentary

Investor Summary

U.S. equities ended December with a modest pullback, but broad indexes still delivered solid double‑digit gains for the full year 2025, reflecting resilient corporate earnings and a stable macroeconomic backdrop. Market volatility, as measured by the Cboe Volatility Index (VIX), drifted toward multi‑year lows, suggesting relatively subdued equity market risk pricing into year‑end.

Economic data pointed to moderating but still positive growth and continued disinflation, with the annual U.S. inflation rate easing to 2.7 percent in December, the lowest level since mid‑year and below prior forecasts. Globally, developed markets generally held up better than emerging markets, while commodities were mixed as precious metals firmed and energy prices remained a source of incremental volatility.

U.S. Equity Market Review

Major U.S. indexes were mixed to slightly lower in December as a late‑month consolidation offset earlier gains, though all four primary benchmarks remained firmly positive for the year. The S&P 500 and Dow Jones Industrial Average slipped into month‑end after setting record or near‑record highs earlier in the quarter, while the Nasdaq Composite and Russell 2000 showed somewhat larger swings as growth and small‑cap segments adjusted to shifting rate and earnings expectations.

• S&P 500: Finished 2025 up around 16%, marking a slowdown from prior years but still strong.

• Nasdaq Composite: The tech-heavy index led gains, closing the year up approximately 19%.

• Dow Jones Industrial Average: Ended 2025 with about a 13% increase.

For 2025 overall, the S&P 500 advanced about 16 percent, the Nasdaq gained just over 20 percent, the Dow rose nearly 13 percent, and the Russell 2000 increased by roughly 11 percent, underscoring broad‑based strength across size segments despite December’s softer tone. Volatility remained contained into year‑end, with VIX readings in the mid‑teens to mid‑14 range on several late‑December sessions, levels that historically correspond to relatively calm equity conditions.

Style and sector rotation

Beneath the index level, sector and style leadership continued to reflect a balance between growth‑oriented themes and more defensive exposures. Earlier 2025 strength in technology and other growth areas moderated as investors reassessed valuations and the durability of artificial intelligence‑related earnings contributions. At the same time, health care and other traditionally defensive segments extended multi‑month stretches of relative outperformance, helped by more stable earnings profiles and, in some periods, renewed investor demand for lower‑volatility allocations.

Across style indexes, value sectors such as financials, energy, and select industrials at times outpaced high‑growth technology names, particularly when interest rate expectations stabilized or moved modestly higher. This pattern contributed to a more balanced market profile versus earlier years when a narrower group of mega‑cap growth stocks had a larger share of total return.

Macroeconomic backdrop

The equity environment remained anchored by moderate real growth and easing inflation pressures. Real GDP growth projections for 2025 were centered in the mid‑1 percent range, with forecasters noting resilient consumer spending but some softening in domestic demand versus prior years. Inflation continued to decelerate, with headline CPI running at 2.7 percent year‑over‑year in December and core measures also trending lower, though still modestly above the Federal Reserve’s longer‑run target.

The Federal Open Market Committee’s December Summary of Economic Projections reflected expectations for slower but still positive growth, a gradual drift higher in the unemployment rate, and inflation converging toward 2 percent over the medium term. This backdrop supported the view that policy rates were likely at or near their cyclical peak, contributing to more stable discount‑rate assumptions for equities even as investors continued to monitor future policy decisions.

Global Market Overview

Global equity performance in December was uneven, with developed markets generally faring better than emerging markets. Developed ex‑U.S. benchmarks, such as MSCI EAFE, tracked relatively close to flat for the broader late‑autumn period, while country‑level results varied depending on sector composition, currency moves, and exposure to global trade and technology supply chains.

Emerging markets lagged on the month as select Asian markets with significant technology weightings, including South Korea and Taiwan, faced renewed pressure from cooling sentiment toward AI‑linked names and adjustments in global semiconductor expectations. Despite softer near‑term returns, some emerging markets continued to benefit from earlier rate‑cut cycles and stronger local‑currency dynamics, which helped improve credit conditions and corporate balance sheets.

Commodities and volatility

Commodity markets delivered mixed results into year‑end. Precious metals, including gold and silver, extended rallies supported by stable or lower real yields and ongoing demand for portfolio diversification, with spot prices advancing during late‑December trading sessions. In contrast, energy markets experienced periodic volatility tied to supply dynamics and shifting expectations for global growth, as crude prices responded to both geopolitical developments and updated demand projections.

Market‑based measures of risk, including the VIX and Treasury volatility indexes, trended lower compared with prior spikes earlier in 2025. The VIX hovered in the mid‑teens by late December, and Treasury market volatility, as tracked by the ICE BofA MOVE Index, stabilized near some of its lowest levels since 2021 after significantly higher readings earlier in the year.

Sector Performance Details

In December 2025, the U.S. stock market saw mixed sector performance, with

Technology remaining a strong driver but facing some volatility, while defensive sectors like Health Care, Utilities, and Consumer Staples provided support and strength, and Financials also showed gains alongside general positive revenue growth across most sectors.

Sector Performance	Dec-25	2025
S&P 500 Health Care Sector	-1.51%	+12.53%
S&P 500 Information Technology Sector	-0.28%	+23.31%
S&P 500 Industrials Sector	+1.13%	+17.70%
S&P 500 Materials Sector	+2.01%	+8.43%
S&P 500 Real Estate Sector	-2.78%	-0.35%
S&P 500 Consumer Staples Sector	-1.96%	+1.32%
S&P 500 Utilities Sector	-5.31%	+12.69%
S&P 500 Financials Sector	+2.94%	+13.32%
S&P 500 Communication Services Sector	-1.06%	+32.41%
S&P 500 Consumer Discretionary Sector	+0.69%	+5.31%
S&P 500 Energy Sector	+0.10%	+4.96%

Source: S&P Dow Jones Indices

S&P 500 sector performance in December showed continued rotation away from earlier high‑flyers toward more income‑oriented and defensive groups. Health care and consumer staples maintained relatively resilient trends as investors emphasized stable cash flows and less cyclically sensitive earnings during periods of index‑level consolidation. Real estate investment trusts and utilities also provided incremental support at times, aided by more stable interest‑rate expectations and demand for yield‑oriented exposures.

Technology, communication services, and other growth‑oriented sectors experienced more pronounced pullbacks in certain weeks, particularly where valuations had expanded most alongside the AI investment narrative. Energy and materials sectors were influenced by commodity price moves and global demand indicators, leading to more mixed relative results over the month even as some longer‑term return measures remained elevated.

U.S. Economic and Earnings Summary

Incoming economic data for late 2025 depicted an environment of slowing but still positive real growth. Forecasts for 2025 real GDP centered near 1.7 percent, reflecting steady consumer spending alongside some moderation in business investment and trade. Personal consumption expenditures remained the primary driver of output, with services spending outpacing goods categories as post‑pandemic normalization continued.

Inflation measures continued to ease. The annual U.S. inflation rate slowed to 2.7 percent in December, driven by moderating core components even as certain energy categories rebounded on a year‑over‑year basis. The PCE price index, the Federal Reserve’s preferred gauge, showed year‑over‑year inflation in the high‑2 percent range in recent months, consistent with the broader disinflation trend.

Corporate earnings remained a key support for equity valuations. By late in the reporting season, a large majority of S&P 500 companies had reported results with positive year‑over‑year revenue growth and a favorable earnings surprise rate relative to consensus expectations. Blended earnings growth for the index turned positive after several earlier quarters of near‑flat trends, while forward price‑to‑earnings multiples stayed above long‑term averages but below peaks seen in earlier expansionary phases.

Company guidance and analyst estimates for upcoming quarters generally pointed to continued, if more moderate, profit growth tied to stable margins, productivity improvements, and cost discipline.

Sector‑level earnings remained uneven, with technology and communication services still contributing a sizable share of overall index earnings, while financials, health care, and industrials provided incremental diversification.

Consumer and Retail Data

Consumer conditions remained central to the late‑2025 economic narrative. Survey‑based measures of household sentiment showed some improvement relative to earlier in the year but remained below long‑run averages, reflecting ongoing sensitivity to price levels, borrowing costs, and labor‑market headlines. Nevertheless, actual spending behavior proved more resilient, with real personal consumption expenditures posting solid year‑over‑year gains across durable and nondurable goods as well as services.

Retail sales data for the holiday period indicated steady nominal growth compared with the prior year, with particular strength in categories tied to experiences, travel, and select discretionary goods. Adjusted for inflation, real retail activity grew at a more moderate pace, consistent with a consumer that remained active but more value‑conscious in the face of prior price increases.

Housing indicators showed a mixed picture. Elevated mortgage rates relative to pre‑2022 levels and constrained existing‑home inventories continued to weigh on transaction volumes, with pending home sales and similar forward‑looking measures remaining subdued in several regions. At the same time, home price measures stayed firm in many markets due to limited supply, while builders reported ongoing though uneven demand for new single‑family construction and select multifamily projects.

Manufacturing and Industry Indicators

Manufacturing activity remained a relative soft spot in the otherwise moderate U.S. expansion. The Richmond Fed’s December survey showed Fifth District manufacturing still in contractionary territory, with a composite index of ‑7 in December versus ‑15 in November, as shipments, new orders, and employment all improved but stayed below zero. Survey respondents continued to report subdued demand alongside caution regarding hiring and capital spending plans, though the pace of decline moderated.

Other regional and national manufacturing gauges painted a similar picture of weak but stabilizing conditions. The Philadelphia Fed’s December Manufacturing Business Outlook Survey described manufacturing activity as “weak,” citing soft new orders and output even as future expectations improved somewhat from earlier in the year. The Dallas Fed’s December Texas Manufacturing Outlook Survey also pointed to challenging conditions for factories in that region, consistent with broader reports of slower demand and elevated cost pressures across several Federal Reserve districts.

Services‑related indicators, by contrast, were generally more resilient. The Dallas Fed’s services index ticked lower but remained closer to flat, suggesting a slower but ongoing expansion in service‑sector activity. Combined, these data continued to highlight a divergence between relatively soft goods‑producing sectors and more stable performance in consumer‑ and business‑oriented services as 2025 drew to a close.

Market Outlook Considerations

As December comes to an end and investors look ahead to the New Year, several investment themes emerged from the final stretch of 2025 that are likely to remain relevant in the months ahead.

First, market leadership continues to broaden, but selectivity matters. While U.S. equities delivered strong full-year gains, returns have become more differentiated across sectors and styles. Earlier momentum in growth-oriented areas moderated at times, while defensive and income-oriented sectors such as health care, utilities, and consumer staples showed periods of relative resilience. This shifting leadership underscores the importance of diversification and avoiding over-concentration in any single theme or segment of the market.

Second, the macroeconomic backdrop points to moderation rather than contraction. Economic data suggest growth is slowing but remains positive, supported by steady consumer spending and easing inflation pressures. Inflation’s continued drift lower has helped stabilize interest-rate expectations, contributing to calmer market conditions even as investors remain attentive to future policy decisions. This environment favors a balanced approach that accounts for both growth opportunities and downside risks.

Third, earnings fundamentals remain a critical driver of returns. Corporate earnings growth provided meaningful support to equity markets in 2025, but valuations in some areas remain elevated. As a result, future performance may depend more heavily on companies’ ability to deliver durable cash flows, manage costs, and maintain balance-sheet strength rather than on multiple expansion alone.

Finally, volatility has receded but has not disappeared. Market-based measures of risk eased into year-end, yet periodic volatility tied to economic data, policy developments, and global events remains likely. These episodes can create both challenges and opportunities, reinforcing the value of disciplined portfolio construction and a long-term perspective.

Taken together, these themes suggest an investment environment that still offers opportunity, but with a narrower margin for error. As investors enter the New Year, maintaining diversification, managing risk thoughtfully, and staying aligned with long-term goals can help navigate markets that are increasingly shaped by fundamentals rather than broad, uniform trends.

Author: FMeX

Published: 1/12/2026

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Data Sources and Methodology

Key data sources referenced in this commentary include, but are not limited to: Bureau of Economic Analysis (BEA) for GDP and PCE data; Bureau of Labor Statistics (BLS) for inflation statistics;​ Federal Reserve (Board of Governors and regional Federal Reserve Banks) for policy information and regional business surveys;​ MSCI, S&P Dow Jones Indices, and related index providers for global and sector index performance;​ Public company filings, index fact sheets, and third‑party market commentaries for earnings and valuation context;​ Financial news and market data services for index‑level, commodity, and volatility measures.tion comes from official Federal Open Market Committee statements and meeting materials.

This Monthly Market Commentary is for informational and educational purposes only and is not investment advice or a recommendation to buy or sell any security. The information reflects historical data and analysis as of November 30, 2025, and may change without notice.

Past performance does not guarantee future results. All investments involve risk, including loss of principal. Diversification does not ensure a profit or protect against loss in declining markets.

The commentary uses data from sources believed to be reliable, but accuracy and completeness are not guaranteed. Index returns are for illustration only, do not represent an actual investment, and cannot be invested in directly. Indexes do not have fees, expenses, or management costs.

Different investments carry different risks. Equity investments can be volatile and may decline in value. Fixed income investments are subject to interest‑rate, credit, and inflation risk. International and emerging‑market investments involve additional risks, including currency moves, political and economic instability, and different accounting standards.

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