Economic Update 12-22-2025

Economic data last week included improved consumer inflation readings (albeit tainted due to a missing month), a stronger than expected employment situation report (also colored by the shutdown’s lack of data), and gains in retail sales, existing home sales, and consumer sentiment. These were offset by a pullback in manufacturing and services PMI data.

Equities were mixed last week by segment in both the U.S. and internationally. Bonds saw gains, as interest rates fell back along with slower inflation results. Commodities were also mixed, with strength in metals specifically and weakness in energy.

U.S. stocks ended the week mixed, with the S&P 500 and Nasdaq up slightly, while the Dow Jones large cap index and Russell 2000 small cap index down, all based on composition. By sector, conditions were mixed, with gains in consumer discretionary (Tesla and Starbucks) and technology (Nvidia and Microsoft) leading the way, while energy stocks fell about -3% in keeping with weaker pricing for crude oil and natural gas, along with high supplies. Real estate fell about a percent.

Foreign stocks saw gains, outperforming the U.S., despite the headwind of a stronger U.S. dollar. The U.K. saw a gain of several percent, while Europe and Japan saw mixed results, as did emerging markets. U.K. stocks were boosted by a Bank of England rate cut of a quarter-point to 3.75%, as inflation there has continued to decline, although the voting margin was a close 5-4. (BOE meetings are much more dissent-oriented than the U.S. FOMC, where disagreement is normally hashed out internally, as opposed to public votes. At least until recently.) European equities were inspired by decent signs of growth along with the ECB noting that policy is “in a good place,” but would remain data-dependent. Going in the opposite policy direction, the Bank of Japan raised their policy interest rate by a quarter-percent from 0.50% to 0.75% (in a unanimous vote), the highest level in 30 years, as economic growth and inflation conditions continue to normalize from their sluggish levels of recent years.

Bonds gained as interest rates pulled back a bit across the U.S. Treasury yield curve, with inflation results coming in a bit softer than expected. U.S. government and investment-grade corporates performed similarly, and outgained high yield and floating rate bank loans. Foreign bonds in developed market local terms were down due to the rising dollar, while EM USD bonds fared positively.

Commodities were mixed for the week, with gains in industrial metals (copper and aluminum, as the latter saw supply impacts from tariffs) and precious metals offset by falling prices in energy and agriculture. Crude oil prices fell over a percent last week to $57/barrel, as markets continued to look well-supplied, causing some reductions in long-term price estimates. Natural gas prices fell back nearly -4%, and around -20% over the past month.

Have a good week and Happy Holidays.

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.