Monthly Market Update—December 5, 2025
November turned out to be a turbulent but ultimately resilient month for risk assets, and early December has largely continued the late November recovery, with the broader trend still underpinned by earnings strength and mounting expectations for another Fed rate cut. We current portfolio positioning continues to lean into the pro-technology themes while also diversifying into international opportunities.
Stock performance and context
Major U.S. equity benchmarks finished November not far from where they began, despite sizable intramonth swings. The S&P 500 was down more than 4% at one point mid-month before recovering to finish with a small gain, while the Dow advanced about 0.4%. The Nasdaq stood out on the downside, posting its first negative month since April and falling roughly 1½%, as profit-taking and valuation worries weighed on large technology and AI-related names.
Looking at the year to date through early December, the picture remains favorable. The Nasdaq is up about 22%, the S&P 500 has gained roughly 16%, and both the Russell 2000 and the Dow are ahead by about 12.5%.
Yields, the Fed, and a data blackout
On the rates side, the story in November and early December has been less about dramatic moves and more about how investors interpret them in the current economic context. The 10-year Treasury yield has hovered near 4%, while the 2-year yield is trading around 3.55%.
The Fed’s preferred inflation measure, core PCE, showed a 2.8% year-over-year increase for September, a bit softer than anticipated. That report was delayed by an extended U.S. government shutdown lasting roughly six weeks and ending in mid-November, which created an unusual stretch with limited official data just as markets were trying to gauge the late-cycle environment.
With that information now available, Fed funds futures imply roughly an 85–90% chance of a 25-basis-point rate cut at the December meeting, after assigning only modest odds to such a move at the start of the month.
High-frequency economic indicators point to a “slowing but not collapsing” backdrop. ADP’s November report showed a decline of 32,000 private-sector jobs, with small businesses accounting for most of the weakness, even as measures like weekly jobless claims remain subdued and some sectors continue to hire. The delayed September BLS report recorded a gain of 119,000 jobs but also a rise in the unemployment rate to 4.4%. November’s official labor data will not be released until December 16, several days after the Fed’s December 10 meeting.
Inflation pressures have eased from their peaks, but services inflation remains persistent enough that any December cut is likely to be framed as risk management and a fine-tuning of policy, not a resumption of the rapid easing cycle that began last year prior to pausing earlier this year.
Growth, earnings, and the AI engine
Corporate fundamentals remain a key support for markets. For the third quarter, S&P 500 earnings are tracking around 22% growth compared with a year earlier, led by the Financials and Technology sectors, with profit margins near a record 13.6%.
AI continues to be central to equity leadership. Nvidia recently delivered another standout quarter, with revenue and data-center sales surging on sustained demand for AI infrastructure. But Google’s shares outpaced in November as its TPU chipset appears to be gaining data-center market share.
At the same time, the broader AI ecosystem continues to see a sharp rise in strategic activity and investment. The largest technology platforms are planning AI-related capital expenditures in the hundreds of billions of dollars across 2025 and 2026, making AI infrastructure a meaningful contributor to expected GDP growth.
That scale of spending benefits both semiconductor manufacturers and infrastructure providers but has also sharpened investors’ focus on valuations and the durability of returns. Those concerns played a significant role in the mid-November pullback in growth stocks, as markets questioned whether prices and expectations had moved too far ahead of fundamentals.
Outside the technology sector, consumer activity has been more resilient than many had expected. Discount and value-oriented retailers have delivered strong earnings surprises and raised guidance, suggesting that while households are becoming more price-sensitive and trading down in some categories, overall spending has remained reasonably healthy.
Valuation and liquidity jitters remain, but broad tariffs worries are fading i
Most of November’s volatility was concentrated in the middle of the month, as anxiety about elevated AI-driven valuations and a rise in realized volatility pushed the Nasdaq into a multi-week drawdown before a sharp rebound during Thanksgiving week.
Reduced liquidity in equity derivatives and index futures likely amplified those moves, a reminder that when a large number of investors attempt to reduce risk simultaneously, price swings can be outsized even without a new macroeconomic shock.
Tariffs and trade tensions have not disappeared, but markets are increasingly treating them as company-specific margin headwinds rather than dominant, market-wide catalysts. Many consumer and apparel brands still point to tariffs as a drag on gross margins, yet their share prices tend to respond more to execution and demand trends than to each incremental policy headline. In practice, investors appear to be focusing more on interest rates, earnings, and AI-related investment than on day-to-day trade news.
Cracks in private credit and a Bitcoin break with equities
Beneath the surface of headline equity indices, the private credit market is attracting greater scrutiny. Large bank leaders, regulators, and rating agencies have all highlighted the rapid growth of this largely non-bank and less transparent market—which has expanded to roughly $3 trillion in assets—as a potential vulnerability in the event of significant stress.
At the same time, crypto assets have notably diverged from equities. Bitcoin has endured one of its weakest stretches of 2025, falling close to 35% from its peak and briefly dropping into the low-$80,000 range before partially recovering.
Heavy outflows from exchange-traded products, profit-taking by shorter-term investors, and a more selective appetite for risk have all weighed on prices. That experience stands in stark contrast to U.S. equities, which are still trading near record levels, and it underscores that more speculative segments of the market are already undergoing a sizable correction even as broad indices hold up on the back of solid fundamentals.
How we are positioned
Given this backdrop, our portfolios remain constructive on risk assets but selective in implementation. We continue to emphasize what we see as the “picks and shovels” of AI and digital infrastructure: leading semiconductor companies, networking and optical-component suppliers, cloud and data-center operators, and the power and grid infrastructure that supports sustained AI and high-performance computing demand, with careful attention to valuation and balance-sheet quality.
We also maintain diversified international exposure. Many developed and emerging markets outside the United States are participating in the global earnings recovery from more reasonable starting valuations, and this non-U.S. allocation has been an important contributor to performance this year while providing diversification away from U.S. sector and policy risk.
On the risk front, we are focused on three key areas. First, the Fed’s path after any December cut—specifically whether policy continues to move from the current 3.75%–4.00% range toward a more neutral, non-restrictive level closer to 3%, or remains too tight for too long. Second, potential stress in funding and liquidity, particularly within private credit and other non-bank segments where leverage and opacity are greatest. Third, the underlying drivers of earnings and growth, including employment trends, wage dynamics, and the staying power of consumer spending.
For now, the combination of strong corporate results and the prospect of measured policy easing continue to support equities. Our approach is to stay invested in the structural growth themes we believe are best positioned for the AI and infrastructure cycle, balance those exposures with diversified international holdings, and remain deliberate about where we take liquidity and credit risk as this market cycle matures.
