December Month-End Market Update

2025 Recap

Tariffs and artificial intelligence were two of the dominant themes driving headlines in 2025. While tariffs were widely expected to push prices higher and slow economic growth at the onset, their actual impact on economic data has proven to be more limited than expected at this stage. The Federal Reserve also remained front and center throughout the year, as President Trump increased pressure on Chair Powell and the FOMC to lower interest rates. 

Despite this pressure, the Fed maintained a patient stance due to concerns that tariffs could eventually reaccelerate inflation. As a result, monetary policy remained steady until September, when the Fed initiated the first of three 25 basis point rate cuts in response to emerging weakness in the labor market. The year also revealed a notably divided Fed, which was most evident at the December FOMC meeting, where three members dissented—two favoring no cut and one advocating for a larger 50 basis point cut. 

Below are key market performance takeaways from 2025: 

• Treasury Yields: Treasuries rallied across most of the curve, delivering their strongest performance since 2020. The move was led by the 2-year yield, which fell 77 basis points to close the year at 3.475% (see chart below). The 30-year was the lone exception, as long-end yields rose globally.
• Credit Indexes: Credit performed well across maturities and ratings, with spreads tightening in both investment-grade and high-yield markets. Investment-grade issuance totaled $1.6 trillion, the second-highest year on record behind 2020’s $1.75 trillion. High-yield issuance reached $328 billion, marking its largest year since 2021. 
• Equity Indexes: All three major U.S. equity indexes finished the year higher, led by the S&P 500 and Nasdaq, which gained 17% and 21%, respectively. 
• Precious Metals: Gold, silver, and platinum reached all-time highs toward the end of December, supported by heightened geopolitical risks. Silver was the standout performer of 2025, rising an extraordinary 148% and ranking as the best-performing major asset class of the year. 
• Oil: Crude prices declined sharply, with Brent and WTI falling 18.5% and 19.9%, respectively, as oversupply and slowing global demand weighed on prices. 
• U.S. Dollar: The U.S. dollar index recorded its worst annual performance since 2017, declining more than 9%. Tariff-related concerns and broader political uncertainty all contributed to a weaker U.S. growth outlook and a softer dollar. 

2026 Outlook

The outlook for the labor market and the selection of the next Federal Reserve Chair represent two of the primary risks facing markets in 2026. The fourth quarter’s government shutdown introduced significant noise into the economic data, making the first several employment reports of the year especially important in shaping expectations for monetary policy and the timing of future rate cuts. 

President Trump is expected to announce his nominee for the next Fed Chair ahead of the May transition, with markets closely focused on the Federal Reserve’s ability to maintain its independence from political pressure. The incoming Chair is widely expected to lean more dovish, and he or she will assume leadership of a notably divided Federal Open Market Committee. 

Key expectations for 2026: 

• Monetary Policy: Fed Funds futures are divided on whether the Fed will cut or will remain on hold June, with a total of 50 basis points of rate cuts expected over the course of the year. This contrasts with the Fed’s own projections, which call for only 25 basis points of easing in 2026 (see chart below). 
• Economic Growth: Economists are forecasting GDP growth of approximately 2% in 2026, slightly below the Fed’s longer-run estimate of 2.3%. Growth momentum was strong in mid-2025, with Q2 and Q3 GDP surprising to the upside at 3.8% and 4.3%, respectively. Consensus estimates for Q4 2025 currently range between 1% and 3%. 
• Treasury Yields: Treasury yields are expected to remain range bound in 2026. Rate strategists broadly forecast the 2-year Treasury yield to trade near the 3.30% level throughout the year (see chart below). 
• Inflation: The Fed’s preferred inflation measure, Core PCE, is expected to remain above the 2% target for a fifth consecutive year. According to the Fed’s projections, Core PCE is not expected to return to 2% until 2028. 
• Labor Market: The unemployment rate is forecast to end 2026 at 4.5%, slightly above the Fed’s year-end projection of 4.4%, reflecting a gradually cooling labor market.