December 2025 Market Commentary

December 11, 2025

• Longest government shutdown on record ends after 43 days.
• Elevated market volatility due to concerns about AI valuations.
• November Returns: S&P 500 0.1%. Bloomberg US Aggregate Bond index 0.6%.

As the rest of the country began to experience colder weather in November, political tensions in Washington, D.C. thawed long enough for Congress to agree to a funding bill, ending the longest government shutdown on record. Nonetheless, markets experienced heightened volatility during the month, spurred by concerns about AI valuations, and exacerbated by comments from multiple Fed officials questioning the need for a December rate cut.

After 43 days, Congress agreed to a spending bill, ending the longest government shutdown on record. Democrats, who had been holding out for an extension of Affordable Care Act subsidies, ultimately provided their support for the bill in exchange for a promise to hold a Senate vote on the subsidies in December. The bill funds the department of Veterans Affairs, the Department of Agriculture, the Supplemental Nutrition Assistance Program (SNAP), the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), military construction, and Congress itself, for the remainder of the fiscal year ending September 30, 2026. The rest of the government, however, only received funding through the end of January, potentially setting the stage for renewed funding tensions early next year. For investors, the end of the shutdown meant the resumption of economic data critical to determining the health of the US economy.

Given recent concerns about the strength of labor markets and the effects of tariffs on inflation, economists, analysts, and investors have been interested to see what the consumer’s proclivity to continue spending will be this holiday season. Black Friday, and the broader Thanksgiving weekend provided an initial, encouraging answer. According to Adobe Analytics, Black Friday online sales rose 9.1% from 2024 to $11.8B, while Cyber Monday sales increased 7.1%, reaching $14.2B. In total, Thanksgiving weekend sales, inclusive of Black Friday and Cyber Monday, increased 7.7% from the same period last year to $44.2B. Stepping back and looking at the month of November, total spending during the month rose 7.1% from November 2024. The early data suggests consumers’ appetite to spend remains healthy. According to the National Retail Federation, holiday shopping measured between November 1, and December 31 is expected to increase 3.7- 4.2% in 2025 vs. 2024, reaching ~$1.1-1.2T, surpassing $1T for the first time ever.

The end of the government shutdown brought the resumption of government data and with it the release of the September employment report. According to the data, 119K new jobs were added in September, more than double the expected 53K. July and August were revised down by a combined 33K, including a negative 26K adjustment to August, resulting in an outright loss of 4K jobs. Unemployment rose 0.1% to 4.4%, a four-year high, as the number of individuals entering the workforce outpaced those who found work. Importantly, the report noted that the government will not issue an October jobs report. Instead, establishment data will be included in the November report scheduled to be released Tuesday, December 16. Despite some recent notable layoff announcements by multiple large companies, weekly jobless claims held relatively steady in November, before dropping at the end of the month to 191K, the lowest level in three years. And while the data may have been skewed by the Thanksgiving holiday, it suggested that layoffs remain relatively modest despite broader concerns of slowing labor market conditions.

Concerns about slowing labor market conditions, coupled with higher prices kept the Fed in focus as investors attempted to handicap the odds of another rate cut in December. The month began with markets pricing in a two-thirds chance of another 0.25% rate cut at the Fed’s December meeting. However, those odds plunged to 30% mid-month, following the release of the Fed’s October FOMC meeting minutes which revealed an animated discussion and wide range of opinions regarding the need for another rate cut in December. According to the minutes, “participants expressed strongly differing views about what policy decision would most likely be appropriate at the Committee’s December meeting,” but many thought it would “likely be appropriate to keep the target range unchanged for the rest of the year.” Additional comments by several Fed members questioning the need for a December rate cut contributed to the decline in market odds while also fueling intra-month equity market volatility.

The decline in market expectations for a December rate cut ultimately proved to be short-lived, rebounding just days later following comments by influential New York Fed Governor John Williams who suggested he might support another rate cut in December. That helped market expectations end the month just shy of 90%. Expectations remained at those levels up to the Fed’s December meeting when officials did in fact cut rates for a third consecutive meeting, lowering the fed funds rate by 0.25% to a range of 3.50-3.75%.

Concerns about elevated valuations of the Magnificent (Mag) 7 stocks triggered bouts of volatility, causing the S&P 500 to fall nearly 4.5% intramonth. Investors’ concerns centered on the significant investments AI companies have made and whether the costs will ultimately justify the return on investment. The topic of “circular financing,” in which many of the large companies in the AI space have made overlapping investment in one another, also fueled concerns about a potential “AI bubble.” By month end, those concerns ebbed, allowing large cap stocks (S&P 500) to eke out a 0.1% gain, marking the seventh consecutive month of positive returns. Small caps (Russell 2000), less burdened by the AI concerns, gained 0.9%. International market returns were mixed with developed markets (MSCI EAFE), rising 0.5% while emerging markets (MSCI EM) fell 2.5%.

Bond markets muddled through November as speculation about further rate cuts this year, and a prolonged government shutdown, kept key uncertainties in play. Nonetheless, the Bloomberg US Aggregate Bond index, the broadest measure of the US bond market, gained 0.6% leaving it on track to record its best year since 2020. The long end of the treasury curve steepened, as rates in the belly of the curve, between one and 10 years, fell approximately 10 basis points (0.10%), while 30-year rates were effectively unchanged. Muni markets were less volatile, closing out the month with a slightly steeper curve and tightened values relative to treasuries.

Significant new corporate bond issuance made headlines as multiple Mag 7 companies issued debt to fuel their AI-related growth. Meta issued $30B in bonds, tied for the fifth-largest investment grade corporate offering ever. Alphabet came to market with $17.5B due in 2075 – a 50-year final maturity – which drew $90B in bids. Additionally, Amazon issued $15B. Year to date, the five leading AI companies have issued $108B in corporate debt, three times the amount they’ve issued in the prior nine years. The companies found the corporate bond market attractive, allowing them to raise debt at historically attractive spreads, preserve their cash balances, and still fund their ambitious AI projects. Investors appreciate the deep pockets, competitive positioning, and strong balance sheets these companies offer but some worry about a feedback loop in AI names, with equity markets and bond markets both exposed to the valuation risks. The municipal bond market posted modest gains in November, as it underperformed all other fixed-income sectors, due largely to significant new issuance. Looking forward, election results will be a key determinant of issuance in 2026 as multiple bond initiatives are put before voters. Writ large, 2025 election results gave a strong indication that 2026 will continue to see strong supply with transit and education projects garnering major tax-payer support. During the 2025 cycle, Denver’s $950M “Vibrant Denver” package was one of the largest bond initiatives in the nation, with all six of its ballot measures passing, suggesting taxpayers remain open to the idea of largescale issuance.

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