Economic Update 12-8-2025

The economic data release schedule has begun to normalize, with last week showing gains in personal income and spending, ISM services, industrial production, and consumer sentiment. These offset the weaker ISM manufacturing and ADP employment reports.

Equities fared positively around the world, with Europe and Japan outperforming the U.S. Most bonds lagged as interest rates ticked higher, although there were pockets of gains. Commodities gained in both energy and base metals.

U.S. stocks gained last week, with slower pre-holiday trading, but continued hopes of a Federal Reserve interest rate cut this coming Wednesday. By sector, gains were led by technology (Nvidia, but even more so by firms like Salesforce and Adobe) and energy, up by over 1% for the week. Sentiment for artificial intelligence appeared to turn bullish again, in a continued back-and-forth lately between optimism about its productivity potential versus higher valuations for related firms and substantial cash flows spent on infrastructure. Laggards included more defensive sectors utilities, health care, and consumer staples, all of which lost several percent. Real estate also fell back by over -1% along with higher interest rates.

Foreign stocks outperformed U.S. last week, with help from a weaker U.S. dollar. Europe and Japan each saw gains of around a percent, while emerging markets outgained all other regions last week. Within EM, South Korea and Taiwan led, in keeping with a connection to U.S. technology sentiment, along with gains in China, which offset a drop of over a percent in Brazil. At least some foreign sentiment appeared to be tied to this coming week’s FOMC decision, which can exacerbate currency trends, particularly in EM.

Bonds fell back last week, with yields moving higher along with not-terrible economic data. While investment-grade corporates lost a bit less than U.S. Treasuries last week, the only sectors with gains were high yield and floating rate bank loans, the latter as would be expected. Foreign bonds were mixed, with a weaker U.S. dollar helping local currency bonds outperform USD-hedged. The Japanese 10-year bond moved back into positive real yield territory for the first time in several years, as markets have been expecting another pickup in BOJ rate hikes.

Commodities were up overall last week, with gains of several percent each in energy and industrial metals, while precious metals were flat, and agriculture lost some ground. Crude oil prices rose nearly 3% last week to $60/barrel, as geopolitical risk due to some re-escalation between Russia-Ukraine during peace negotiations, which offset weaker demand fundamentals and high supplies generally. Natural gas prices continued to move sharply higher, over 7%, along with strong early winter demand due to early cold weather in the U.S., as well as for U.S. exports, which have been increasingly replacing gas from other global suppliers.

Sources:  LSA Portfolio Analytics, American Association for Individual Investors (AAII), Associated Press, Barclays Capital, Bloomberg, Deutsche Bank, FactSet, Financial Times, Goldman Sachs, JPMorgan Asset Management, Kiplinger’s, Marketfield Asset Management, Minyanville, Morgan Stanley, MSCI, Morningstar, Northern Trust, Oppenheimer Funds, Payden & Rygel, PIMCO, Rafferty Capital Markets, LLC, Schroder’s, Standard & Poor’s, The Conference Board, Thomson Reuters, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, Wells Capital Management, Yahoo!, Zacks Investment Research.  Index performance is shown as total return, which includes dividends, with the exception of MSCI-EM, which is quoted as price return/excluding dividends.  Performance for the MSCI-EAFE and MSCI-EM indexes is quoted in U.S. Dollar investor terms.

The information above has been obtained from sources considered reliable, but no representation is made as to its completeness, accuracy or timeliness.  All information and opinions expressed are subject to change without notice.  Information provided in this report is not intended to be, and should not be construed as, investment, legal or tax advice; and does not constitute an offer, or a solicitation of any offer, to buy or sell any security, investment or other product.