December wrapped up a year that frequently challenged expectations, shaped by easing price pressures, a more supportive Federal Reserve, and steady equity markets. Together, these factors allowed investors to navigate another rate cut without disrupting the broader soft‑landing outlook for 2026.

Inflation Data Shows Continued Cooling

November’s Consumer Price Index showed headline inflation at 2.7% year over year, the lowest level since mid‑year and slightly below forecasts. Core CPI moved up 2.6%, with shelter, medical care, and household furnishings contributing modestly. Monthly increases of 0.3% for headline and 0.2% for core came in under consensus as well. While gasoline prices picked up, easing trends in shelter and core services supported an ongoing moderation in inflation.

Labor Market Momentum Slows

Hiring softened further in November. The unemployment rate rose to 4.6%, prompting the Fed to describe the labor market as moving toward better balance. Payrolls increased by 64,000, below the year’s monthly average. Healthcare and construction added workers, while transportation, warehousing, and consumer‑facing sectors experienced declines. Analysts continued to characterize conditions as a low‑hiring, low‑firing environment with layoffs still historically subdued.

Mixed Signals Across Major U.S. Indices

Market performance diverged meaningfully during December. The S&P 500 finished almost unchanged after a strong year, while the Nasdaq 100 gave back some gains following months of leadership from AI‑related names. In contrast, the Dow advanced as investors rotated toward more defensive industrial names heading into year‑end.

Fed Delivers Another Rate Cut

The December 10 FOMC meeting introduced a third consecutive 25‑basis‑point reduction, bringing the federal funds rate to 3.50%–3.75%. Policymakers noted moderate growth, slower job gains, and still‑elevated inflation, framing the decision as a shift toward balancing inflation risks with labor market concerns. Updated projections pointed to a gradual easing path, with only two additional cuts anticipated through 2027 and core inflation drifting toward 2% over time.

Minutes released at the end of December highlighted a divided committee, with a 9–3 vote marking the most dissents since 2019. Officials debated whether disinflation had become durable enough to justify continued easing, emphasizing a finely balanced decision‑making process.

Services Stay Resilient as Manufacturing Contracts

Service‑sector activity continued to expand, with the ISM Services PMI holding at 52.6 for November. Business activity and new orders remained in growth territory, though the employment index stayed below 50, suggesting slower hiring. Manufacturing, however, remained in contraction, with the ISM factory index slipping to 48.2 as export demand softened and inventories were reduced.

Looking Ahead to 2026

The general outlook among major strategists points toward a soft landing supported by modest growth, inflation edging closer to the Fed’s target, and a measured pace of policy easing. For diversified, long‑term investors, familiar themes continue to apply: staying invested, keeping balance across growth and income, and viewing volatility as an opportunity rather than a signal to deviate from long‑term plans.

As always, we encourage readers to reach out to our financial team for personalized guidance and support tailored to your goals.