December 2025
US Economy: Working class warning signs.
Though the government shutdown disrupted some economic data releases, the data available, including job growth (119k in Sept.) underscored that while the economy continues to cool, the foundation appears relatively stable but with some potential fissures. That said, consumer confidence fell to its lowest level since April and retail sales (+0.2% in Sept.) slowed much more than anticipated, suggesting that consumers, especially in lower income brackets, are vulnerable to elevated inflation and cooling wage growth.
US Stocks: AI stocks stumble, defensive stocks lead.
The Magnificent 7 slipped about 1%, though select names outperformed. Alphabet surged 13.9% on accelerating adoption of its Gemini AI models and chip sales to Meta, reinforcing its position as an emerging competitor to Nvidia in processing. Meanwhile, concerns over a softening economic backdrop steered investors toward defensive sectors, notably health care (+9.3%), led by pharmaceuticals offering attractive valuations and robust earnings.
Foreign Stocks: Increasing risk aversion?
Emerging markets gave back some of their lead relative to both US and developed non-US stocks in November. Whereas the most AI sensitive non-US companies had been the strongest performers year-to-date, less certainty about future interest rate cuts from the Fed and the potential for a reduced US dollar tailwind seemed to have investors locking in gains. High flying South Korea (+78.1% YTD), among the standard bearers of Non-US AI markets, fell nearly 8%.
Fixed Income: Treasury yields rise in early December.
The 10-year US Treasury (“UST”) yield fell to 4.0% at the end of November with economic uncertainty the most significant factor supporting the UST’s continued role as a safe haven asset. That said, expectations that Kevin Hassett, a noted ally of the Trump administration and interest rate dove, would be appointed as the next Fed chair led to rising Treasury yields over the Thanksgiving holiday weekend, as investors consider the possibility that inflation could be allowed to run a bit hotter than historical precedent in pursuit of growth.
Real Assets: Staid assets continue to shine.
Infrastructure equities—spanning traditional and renewable energy—alongside gold remained leaders within the asset class, driven by rising electricity demand and gold’s role as a hedge against U.S. economic uncertainty. Infrastructure has stood out in recent years, offering attractive valuations, moderate correlation to broader equity markets, and a unique link to the AI-driven growth narrative. While volatility sits between that of stocks and bonds, the added benefit of income generation continues to make this category compelling.
Alternatives: Programmatic and targeted.
Private markets have trailed public markets in recent years, pressured by a tough environment for exits and costly financing—a dynamic that’s far from unusual. Encouragingly, deal activity and investor distributions have been trending higher, and as is often the case, opportunities remain for disciplined, long-term allocations by those prepared to act with a programmatic approach.
Source of data: Bloomberg
Equities Total Return
| NOV | YTD | 1 YR | |
|---|---|---|---|
| U.S. Large Cap | 0.2% | 17.8% | 15.0% |
| U.S. Small Cap | 1.0% | 13.5% | 4.1% |
| U.S. Growth | (1.7%) | 18.8% | 19.3% |
| U.S. Value | 2.7% | 14.9% | 7.0% |
| Int’l Developed | 0.6% | 27.4% | 24.5% |
| Emerging Markets | (2.4%) | 29.7% | 29.5% |
Fixed Income Total Return
| NOV | YTD | 1 YR | |
|---|---|---|---|
| Taxable | |||
| U.S. Agg. Bond | 0.6% | 7.5% | 5.7% |
| TIPS | 0.2% | 7.4% | 5.7% |
| U.S. High Yield | 0.5% | 7.8% | 7.3% |
| Int’l Developed | (0.4%) | (0.4%) | (1.4%) |
| Emerging Markets | (0.0%) | 4.2% | 5.0% |
| Tax-Exempt | |||
| Intermediate Munis | 0.1% | 4.8% | 4.0% |
| Munis Broad Mkt | 0.2% | 3.8% | 2.5% |
Non-Traditional Assets Total Return
| NOV | YTD | 1 YR | |
|---|---|---|---|
| Commodities | 3.2% | 16.1% | 17.3% |
| REITs | 2.2% | 4.5% | (3.9%) |
| Infrastructure | 3.3% | 23.4% | 17.9% |
| Hedge Funds | |||
| Absolute Return | 0.4% | 4.9% | 5.0% |
| Overall HF Market | 0.0% | 6.4% | 6.4% |
| Managed Futures | (0.1%) | (1.6%) | (0.4%) |
Economic Indicators
| NOV-25 | MAY-25 | NOV-24 | |
|---|---|---|---|
| Equity Volatility | 16.4 | 18.6 | 13.5 |
| Implied Inflation | 2.2% | 2.3% | 2.3% |
| Gold Spot $/OZ | 4239.4 | $3289.3 | $2643.2 |
| Oil ($/BBL) | $63.2 | $63.9 | $72.9 |
| U.S. Dollar Index | 122.2 | 122.7 | 126.5 |
Our Take
American poet William Carlos Williams once wrote, “so much depends upon a red wheelbarrow.” In today’s markets, that wheelbarrow is Artificial Intelligence—a subject investors that has captured investor attention. AI has become central to both market narratives and economic expectations, with valuations riding on its promise to transform productivity. Google’s Gemini 3 launch and Meta’s purchase of Google chips may pressure OpenAI and companies tied to its circular commitments, but Jevons Paradox suggests this could be a net positive for the broader economy. Jevons Paradox posits that transformative technologies attract new competitors, costs fall and adoption accelerates—expanding AI’s reach well beyond tech and reinforcing its potential to drive productivity gains across industries.
But AI isn’t the only wheelbarrow in view. Markets are also hyper-focused on the December Fed meeting and Chair Powell’s messaging and tone thereafter. Williams, Waller, and Daly have signaled flexibility, pushing odds of a December cut sharply higher, while Powell may frame any move as ‘hawkish’—a final insurance cut rather than the start of an easing cycle. That nuance matters for risk assets. Add widening credit spreads, cooling labor markets, and political catalysts—from ACA subsidy progress to a potential Russia-Ukraine ceasefire—and you have a market trading on hope but increasingly sensitive to cracks in the narrative. For investors, the message is clear: opportunity exists, but discipline and adaptability will define success as these wheelbarrows roll into 2026.
As far as portfolio management, our focus is on risk as we finish a third consecutive strong year for diversified portfolios. Rebalancing should be evaluated of course, even if it means paying some taxes. While yields have fallen from their recent peaks, core fixed income yields remain above 20-year averages and bonds are the asset class most likely to outperform equities should the economic picture sour or the enthusiasm for artificial intelligence take a meaningful hit in 2026. We also continue to like diversifying exposures such as hedge funds where appropriate as the correlation between stocks and bonds has shown to rise should concerns over US government fiscal/monetary prudency and accelerated inflation rekindle.
