Knowledge Center
Market Currents – 12/12/25
- The Rally Catches Its Breath. After six straight months of uninterrupted gains, November brought a touch of turbulence. The flat headline numbers mask an important shift beneath the surface. For the first time in a while, the high-flying AI darlings that powered much of this year’s returns lost momentum as investors reconsidered their stretched valuations. Critically, the rest of the market did not buckle. Instead, the “average” stock stepped up, with long-neglected sectors absorbing the slack left by the technology giants. While it feels jarring to see the major technology names pause, this broadening of leadership is actually a healthy development that points to a more balanced and resilient market foundation.
- The Economic Fog Lifts, But the View Remains Hazy. The resolution to the standoff in Washington has restored a degree of visibility to the markets, though the picture remains far from complete. Government agencies have begun releasing their backlog of economic reports, but many remain in catch-up mode, leaving investors to interpret a patchwork of delayed data and likely revisions ahead. What has surfaced so far points to a more challenging backdrop. We are seeing a “sticky” inflation backdrop where price pressures remain elevated, clashing with labor data that indicates a clear softening in hiring. Rather than providing a clean bill of health, the new data suggests the economy is navigating a more delicate juncture.
- The Fed Delivers a Widely Expected Cut. As anticipated, the Federal Reserve lowered its benchmark interest rate by 0.25% at its final meeting of the year. While this move was largely priced in by investors, it carries meaningful weight given the conflicting economic signals currently at play. Chair Jerome Powell framed the decision as a response to emerging labor-market risks, while emphasizing the need for more complete data to gauge how earlier policy actions are filtering through the economy before committing to a path for 2026. Beyond the immediate policy decision, attention is turning to future leadership. Powell’s term as chair concludes in May, and the White House is actively reviewing candidates for the next Federal Reserve leader, with a nomination expected in early January.
- AI Trade Enters a More Selective Phase. After an extraordinary run, the AI theme appears to be shifting into a more mature stage of its market cycle. The broad enthusiasm that once lifted nearly every company associated with the sector is giving way to a more discerning environment. Increasingly, investors are looking past the initial wave of infrastructure spending to demand clearer evidence of real-world application and monetization, delivered at justifiable cost. As we head into 2026, the winners will likely be defined not by their capacity to spend on the technology, but by their ability to turn AI into profitable, scalable business results.
- A Balanced Outlook for 2026. The fundamental backdrop remains constructive, supported by solid corporate earnings and an accommodative Federal Reserve. However, the historic concentration within a small group of AI-focused companies tempers our enthusiasm. Rather than “closet indexing” into an increasingly top-heavy market, we believe the best defense is rigorous security selection and genuine diversification. Throughout the recent rally, we have prudently trimmed overextended winners and built dry powder to deploy into high-quality opportunities in less-crowded areas of the market. Thank you for your continued trust in us, and we wish you and your family a wonderful holiday season.