Financial Market Update – Week of 3/9/26

Last week brought two unwelcome surprises: a 35% spike in crude oil prices triggered by U.S. military conflict with Iran and a disappointing jobs report. 

Stocks drifted lower, and volatility picked up as investors rotated out of higher-growth areas and into more defensive names like utilities, dividend payers, and select energy stocks. 

The message from markets was cautious but not panicked. Slower growth, higher energy costs, and geopolitical risk are real headwinds, but a weaker economy could also give the Federal Reserve more reason to cut rates, which would eventually be a tailwind for investors. 

Here’s a look at how the markets performed last week. 

Stock Index Performance 

• The S&P 500 declined 2.02%.
• The Nasdaq 100 dropped 1.27%.
• The Dow Jones Industrial Average lost 3.01%.

The Story Behind the Numbers

• The Job Market Is Slowing. February’s jobs report was a clear disappointment. The economy shed 92,000 jobs, well below expectations for a modest gain. Data also revealed significant downward revisions to December and January, indicating a weaker labor market than previously reported. This isn’t cause for alarm, but it does signal that the strong job market of recent years is cooling.
• The Broader Economy Is Still Holding Up. Despite the weak jobs report, a key measure of services industry activity — which covers everything from restaurants to healthcare to financial services — surged to its highest level since 2022. The takeaway here is that consumers are still spending, and businesses outside of government and tech are still growing.
• A Complicating Factor: Rising Oil Prices. Escalating conflict in the Middle East sent oil prices soaring last week. Higher energy costs can feed directly into inflation, which puts the Federal Reserve in a bind. Even with the job market softening, some investors now fear policymakers may feel pressured to keep interest rates “higher for longer” to keep energy-driven inflation in check, which can be a drag on both the economy and markets. 

The Week Ahead 

• The main events are Tuesday’s (March 11) Consumer Price Index (CPI) and Wednesday’s (March 12) Producer Price Index (PPI) reports for February. A higher-than-expected reading on either could revive fears that inflation is stuck above the Fed’s 2% target, especially with oil prices already pushing higher. A softer reading, on the other hand, could strengthen the case for rate cuts later this year.
• With the March 17-18 Federal Reserve meeting about a week away, investors will also be listening carefully to any public comments from Fed officials. As of the start of this week, markets still price a near-0% chance that the Fed will cut rates at the March meeting. The inflation reports, combined with Fed commentary, will shape market expectations heading into the meeting.

The next few months will likely bring more volatility as markets look for clarity on three fronts: whether the job market continues to weaken, whether oil prices stabilize or climb further, and how the Fed responds. For long-term investors, staying diversified across sectors remains one of the most effective ways to manage through periods like this.

As always, we’re watching the market and are here to help keep you informed about the current financial climate. If you have any questions about your portfolio or would like to talk through these shifts, don’t hesitate to reach out.

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Last month gave investors plenty to weigh. Job growth held firm, and corporate earnings delivered again, particularly among AI-driven companies. But inflation ticked back up, reminding us that the Federal Reserve’s job isn’t finished. The result was stocks remaining near record highs, yet with more day-to-day volatility.

It remains true that strategic investing isn’t just about timing the market; it’s also about understanding the environment. I’m here to help you make sense of the noise so you can feel confident and informed, no matter the landscape. 

Below is a look at how markets performed in February, the dynamics behind the numbers, and where we are focusing our attention.

Major U.S. Stock Indices 

February was a stress test for U.S. markets, with each major index responding differently to the same mix of solid growth, sticky inflation, and shifting sentiment around AI. Tech stocks, particularly software names, bore the brunt of the struggle, while the S&P 500 moved sideways and the Dow held up comparatively well.

What drove that divergence was a quiet but meaningful shift in investor priorities. Capital migrated from mega-cap tech and toward industrials, materials, and consumer staples.

• The S&P 500 retreated 0.87%. 
• The Nasdaq 100 led the decline at 2.32%.
• The Dow Jones Industrial Average finished up at 0.17%.

Behind the Headlines

The Economy: Growth Holds, Inflation Lingers. The U.S. economy started 2026 on a solid footing. January numbers, released in February, showed that the economy added 130,000 jobs, well above expectations, and the unemployment rate dipped to 4.3%.

The problem is inflation. Consumer prices, producer prices, and the most recent data for the Fed’s preferred Personal Consumption Expenditures (PCE) showed the measure moved in the wrong direction, with core PCE climbing to 3.0%. Growth is holding up, but so is inflation.

The Federal Reserve: In No Rush. With inflation picking back up and the economy still resilient, officials see no urgency to cut. For the March Fed meetings, markets are pricing a near-zero chance of an additional rate cut. Instead, markets now expect one to two modest rate cuts later in 2026, but only if inflation clearly resumes its downward trend. For now, the Fed is likely standing pat.

Stocks: Strong Earnings, More Selective Market. The S&P 500 remains near record highs, supported by impressive earnings. Q4 2025 marked the fifth straight quarter of double-digit profit growth, and 2026 estimates call for roughly 14% more. But the market has grown more selective. Energy, materials, and industrials are leading, while AI giants like Nvidia beat expectations but saw volatile, uneven trading. The message is clear: strong earnings alone are no longer enough; sector positioning increasingly determines who wins.

Interest Rates: A Tale of Two Yields. February brought an unusual dynamic in the bond market. Short-term yields edged higher as the Fed held firm, while longer-term yields actually fell, with the 10-year Treasury settling below 4%. This divergence reflects investor caution and demand for safety. The upside: short-term bonds and money markets can continue to offer attractive income for patient investors.

Foreign Policy: US and Israel Strike Iran. On February 28th, the United States and Israel jointly struck Iran, with Iran responding militarily, resulting in the effective closure of the Strait of Hormuz. This action had ripple effects across the global economy, with oil prices rising and stocks falling as the conflict escalated across the region. While the long-term impacts of this action are yet to be seen, investors can expect some additional volatility as the conflict continues to unfold.

Putting It All Together

February was a reminder that even solid fundamentals can coexist with volatility. Growth and earnings remain resilient, but sticky inflation has the Fed in a holding pattern, and markets have grown more selective as a result.

The end of the month presented real geopolitical instability, with potential implications for markets. As always, we are keeping an eye on the market and are here to keep you informed about the current financial climate. If you have any questions about your portfolio or would like to talk through these shifts, don’t hesitate to reach out.

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Last week’s macroeconomic message was mixed: solid growth but sticky inflation keeps the Federal Reserve in “higher for longer” mode, dashing hopes for rate cuts. Beneath calm index moves, money rotated aggressively between sectors as investors recalibrated who benefits from this environment and who’s exposed.

AI disruption has spread well beyond mega-cap tech, forcing investors to rethink earnings power across nearly every industry. The market may look orderly from a distance, but leadership is shifting quickly — and the gap between winners and losers is widening.

Below is the weekly scorecard.

Stock Index Performance 

• The S&P 500 gained 1.07%.
• The Nasdaq 100 climbed 1.13%.
• The Dow Jones Industrial Average added 0.25%.

The Macro Snapshot

• The Economy Is Still Growing, But Losing Steam. The economy grew at a 1.4% annual rate in the fourth quarter of 2025, down from 4.4% the prior quarter. Consumer spending kept growth positive, but softer inventories and exports were a drag. The Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, ended 2025 above its 2% target, with both headline and core PCE re-accelerating in December.
• Inflation Is Sticky, But Households Expect It to Improve. December PCE confirmed inflation ended the year above expectations. But the University of Michigan’s February survey showed one-year inflation expectations among consumers falling to 3.4% from 4.0%, a “sticky but not spiraling” picture that keeps the Fed cautious but not alarmed.
• The Fed Is In No Hurry to Cut Rates. Minutes from the Fed’s late-January Federal Open Market Committee (FOMC) meeting revealed a more divided committee than many expected, with some officials raising the possibility of rate hikes if inflation doesn’t cooperate. After three consecutive cuts late in 2025, the Fed has paused at 3.5%–3.75% and wants clear evidence that inflation is returning to its 2% target before easing further.
• Tariff Decision and Reaction. Last Friday, policy risk intensified as the Supreme Court invalidated President Trump’s emergency-law tariffs — but markets rallied after Trump quickly announced a new 10% global tariff (then upped to 15% on Saturday). Analysts warn that overall tariff levels are unlikely to fall, since other statutes allow the president to reimpose duties under different legal frameworks.

The Week Ahead 

• Several key releases this week will show whether the economy is cooling just enough for the Fed. The calendar includes factory orders (Monday, Feb. 23), consumer confidence (Tuesday, Feb. 24), new home sales (Wednesday, Feb. 25), and durable goods orders (Thursday, Feb. 26). Together, they’ll shape whether markets hold to gradual rate-cut expectations for 2026 or start pricing a faster easing path if demand clearly softens.
• Nvidia and Salesforce headline a heavy slate of AI-linked earnings reports Tuesday through Thursday. With expectations already high, results could reinforce the AI theme or spark fresh volatility.

For long-term investors, fundamentals still win: strong balance sheets, steady cash flows, and companies with a clear AI advantage over their competitors. As always, if you have any questions or concerns, feel free to reach out. We are here as a resource for you! 

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U.S. markets digested a Goldilocks scenario last week: strong jobs data paired with cooling inflation. This reinforced the soft-landing premise, leaving the Federal Reserve with little reason to rush rate cuts. Investors are recalibrating expectations for 2026 rate cuts, assessing how long rates might stay at current levels.

Equities lurched, however, as AI anxiety triggered a sharp rotation from tech favorites into cyclical and value plays. (You can learn more about cyclical stocks here and value stocks here.) 

Here’s how the major indices fared:

Stock Index Performance 

• The S&P 500 fell 1.39%.
• The Nasdaq 100 fell 1.37%.
• The Dow Jones Industrial Average fell 1.23%.

Key Market Drivers 

• Jobs and inflation align. January payrolls jumped by 130,000, beating expectations as unemployment dipped to 4.3%. Friday’s Consumer Price Index (CPI) eased to 2.4% from 2.7%, with core inflation (which removes more volatile food and energy from the metric) at 2.5%. This reinforces that the soft landing remains on track: labor markets stay firm while inflation nears 2% without crushing demand.
• Sector divergence shows resilience. Job gains were concentrated in health care, social assistance, and construction, while federal government and financial activities shed workers. While the services economy seems to be absorbing public-sector adjustments, white-collar and institutional hiring continues to cool,
• The Fed can afford to wait. With inflation at 2.4% and unemployment at 4.3%, bond markets held steady, and pricing now reflects gradual easing later in 2026. The Fed is expected to stay patient with the interest rate in the mid-3% range, seeking clearer demand signals.
• AI fears turn systemic. AI-disruption concerns have spread beyond tech stocks into sector ETFs and broad indices as investors reassess earnings power across industries.

The Week Ahead 

• Key data arrives this week: Fed minutes from late January (Feb. 18), plus Q4 Gross Domestic Product (GDP) and January Personal Consumption Expenditures (PCE) (Feb. 20). Markets will scrutinize whether PCE inflation, the Fed’s preferred inflation gauge, nears 2% without growth concerns and if minutes reveal timing bias on cuts. Short-term rate and dollar reactions will signal whether the data bolsters risk assets and duration or confirms a later, slower easing cycle.
• Fed chair nominee Kevin Warsh’s confirmation shifts from backroom negotiations to public hearings after Treasury Secretary Scott Bessent confirmed Senate progress. A smooth confirmation path keeps focus on fundamentals, while renewed political threats could lift volatility and term premiums if Fed independence comes into question.

On Monday, Feb. 16, U.S. stock and bond markets will be closed in observance of Presidents’ Day. The macro picture supports patience, but market structure — concentrated positioning, technology disruption concerns, political noise — will drive near-term price action. Remember: a commitment to long-term investing can help Americans avoid rash, short-term decisions in such moments.

As always, if you have any questions or concerns, do not hesitate to reach out.

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Last week delivered whipsaw action: U.S. stocks suffered a sharp tech-led selloff midweek before roaring back to push the Dow above 50,000 for the first time. The S&P 500 narrowly avoided its worst weekly drop since October as investors grappled with rising rate fears and AI-bubble anxiety.

The volatility in growth and tech stocks has reflected a repricing driven by inflation concerns and excessive valuations. And with the January jobs report and other key data delayed by a brief government shutdown, traders leaned on sector positioning, Federal Reserve expectations, and earnings reports instead of fresh macro signals. 

Here’s what happened and what to watch.

Stock Index Performance 

• The S&P 500 slipped 0.10%.
• The Nasdaq 100 fell 1.87%.
• The Dow Jones Industrial Average outperformed, jumping 2.50%.

Policy Tensions and Data Update 

• Fed Policy Tensions – President Trump’s nomination of Kevin Warsh to succeed Jerome Powell in May drove analysis last week. Warsh, who criticized past liquidity injections and the ‘bloated’ Fed balance sheet, now aligns with lower rates, yet inherits a cautious Fed board signaling rates in the low-to-mid-3s by year-end. Markets priced a dovish shift, while policymakers’ dynamics suggest otherwise.
• Macro Data Paused Again – The brief government shutdown pushed back key economic data releases. The January jobs report moved to Feb. 11, and December’s Job Openings and Labor Turnover Survey (JOLTS) was also postponed. 
• Other Data Was Mixed: While ADP reported just 22,000 private payrolls in January, University of Michigan sentiment jumped to its highest since August and inflation expectations fell to 3.5%.

The Week Ahead 

• The shutdown concentrated both January jobs and Consumer Price Index (CPI) reports into one week (Feb. 11 & 13) — the first clean read on 2026 growth and inflation. Economists expect modest payroll gains (50,000-90,000) and inflation rising about 0.3% monthly and about 2.5% yearly. How do these prints reshape Fed cuts with rates already at 3.5-3.75%? Weak jobs plus tame CPI support earlier easing; higher inflation surprises revive ‘higher for longer’ fears.
• Warsh’s Fed nomination is turning into a fight, with Democrats and at least one Republican (Sen. Tillis) pushing to delay or withhold support, raising odds of a drawn‑out confirmation that may unsettle markets by clouding the policy‑rate path and Fed independence just as key jobs and CPI data hit. This political uncertainty adds weight to this week’s data, making it unusually important for recalibrating expectations on both the path of policy rates and the credibility of the institution setting them.

Looking forward, the economy continues on a steady if slowing path. The key question: can corporate earnings justify current valuations and support further market gains? 

As always, we are here to discuss how these developments affect your portfolio. Feel free to reach out with any questions or concerns!

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Last month, the U.S. economy continued its above-trend expansion, driven primarily by robust consumer spending and a resilient services sector. Housing showed renewed momentum as lower mortgage rates brought buyers back to the market. 

Yet beneath these positives, challenges are mounting. Manufacturing activity has now contracted for ten consecutive months while inflation remains elevated despite recent moderation. Meanwhile, the Federal Reserve signals a cautious approach to rate cuts even as political pressure builds for more aggressive action.

Here’s what unfolded in January, the dynamics behind the headlines, and where we’re focusing our attention.

Major U.S. Stock Indices 

Small-cap stocks finally had their moment in early 2026. Long overshadowed by the “Magnificent 7,” they roared back to life, with the Russell 2000 outperforming both the S&P 500 and Nasdaq for 14 consecutive trading sessions. 

The rotation signals investors are venturing beyond mega-cap tech to hunt for value in domestic-focused companies with Main Street exposure and those that benefit from improving financing conditions. 

Overall:

• The S&P 500 gained 1.37%. 
• The Nasdaq 100 increased 1.20%.
• The Dow Jones Industrial Average outperformed, up 1.73%.

Economic Snapshot

• The economy entered 2026 with momentum. Q3 2025 Gross Domestic Product (GDP) hit 4.4% annualized, the strongest in two years, while Q4 tracking models pointed to 3-4% growth. Yet, the trajectory has likely peaked. High-frequency data show growth narrowing, increasingly reliant on services and government spending rather than broad private demand. Forecasters expect normalization toward 2% trend growth through 2026 — healthy, but hardly booming.
• December payrolls rose just 50,000, well below 2024’s monthly average of 168,000, with cuts concentrated in retail and manufacturing. Unemployment held at 4.4%, suggesting gradual cooling rather than outright deterioration. Wage growth has moderated, keeping real incomes positive and supporting consumer spending without reigniting inflation.
• The headline Consumer Price Index (CPI) came in at 2.7% year over year in December, approaching the Fed’s target but not quite there. The bigger concern: producer prices posted their sharpest monthly gain in five months as tariff-related costs filtered through. The Fed held rates steady at 3.5-3.75% in late January and signaled at most one more cut in 2026, emphasizing data dependency and institutional independence amid escalating political pressure.
• The Institute for Supply Management’s (ISM) manufacturing index remained in contraction for a tenth straight month at 47.9, with weak orders, shrinking inventories, and job losses amplified by tariff headwinds. Meanwhile, services sectors continue expanding, housing transactions jumped 5% in December due to lower mortgage rates, and credit spreads sit near historic lows, suggesting a bifurcated economy: goods producers struggle while consumers stay resilient.

Our Outlook

The current environment is defined by tempered growth, ongoing disinflation, and a Federal Reserve approaching the conclusion of its easing cycle. It’s notable that market leadership is broadening. After years of mega-cap tech dominance, small caps and cyclicals are finding their footing, creating opportunities in areas that missed the prior rally.

That said, we’re in a mature expansion where policy uncertainty and geopolitical tensions will create periodic volatility. We’re balancing cyclical exposure with quality, maintaining valuation discipline, and preserving capital for opportunities. In environments like this, what you avoid matters as much as what you own.

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Last week, U.S. markets whipsawed through the shortened week as tariff threats and business surveys shifted expectations for growth and Federal Reserve policy. Stocks tumbled on Europe and Greenland tariff fears before recovering quickly, while fresh data confirmed consumer strength and easing prices, supporting a gradual slowdown without recession and keeping the Fed on hold.

Below is the rundown and outlook.

Stock Index Performance 

• The S&P 500 fell 0.35%.
• The Nasdaq 100 rose 0.30%.
• The Dow Jones Industrial Average dropped 0.53%.

What the Latest Data Shows

• Consumer spending remained strong through year-end 2025. Personal spending rose 0.5% in both October and November, with broad gains across services like health care and financial services and goods like recreational items and clothing. Real spending climbed 0.3% in November, even as income growth remained modest and the savings rate slipped to 3.5%, indicating consumers are still willing to spend but have less cushion than before.
• Inflation continues its slow grind lower but isn’t at target yet. The Personal Consumption Expenditures (PCE) index rose 0.2% in November, putting the annual rate at 2.8%, just above October’s 2.7%. While still elevated compared to the Fed’s 2% goal, the trajectory supports continued disinflation without alarming policymakers or forcing their hand on rate cuts.
• Business activity is expanding but losing steam. January’s flash Purchasing Managers’ Index (PMI) survey showed the private sector still growing, but momentum is clearly slowing from the stronger second half of 2025. Manufacturing picked up slightly while services held steady, yet new orders remained weak across both sectors and companies reported near-stagnant hiring amid cautious sentiment and elevated costs.
• The Fed expected to pause with room to cut later. Solid growth paired with inflation above 2% gives the central bank no reason to rush into rate cuts at this month’s meeting. But with business surveys pointing to softer demand, a weaker labor market, and gradual disinflation, the door remains open for cuts later in 2026 if the slowdown continues.

The Week Ahead 

• Wednesday’s Federal Reserve decision will dominate the week, with markets expecting rates to hold at 3.5–3.75% while trying to parse Fed Chair Jerome Powell’s hints on future cuts. Importantly, December’s Producer Price Index (PPI) (Jan. 30) will be one of the first “clean” looks at wholesale inflation since the data blackout, while investors will scrutinize it to see if businesses are absorbing higher input costs or passing them to customers.
• Major tech names, including Meta, Microsoft, Tesla, and Apple, will report earnings alongside blue-chip heavyweights like UnitedHealth and Exxon Mobil. With Q4 earnings expected to be up 8–9% overall and 2026 growth projected at nearly 15%, investors need to see profit strength broaden beyond tech.

As we look ahead, the economy’s path remains steady but moderating. A major test lies in whether more companies can deliver solid profits to justify current valuations and fuel further gains. 

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U.S. markets showed mixed performance last week, with the S&P 500 posting a losing week despite hitting new records mid-week. Volatility stemmed from President Trump’s Federal Reserve comments, cautious guidance from major banks, and mixed economic signals, though inflation readings, strong retail spending, and resilient growth indicators bolstered the soft-landing narrative.

Here are the week’s most important developments:

Stock Index Performance 

• The S&P 500 declined 0.38%.
• The Nasdaq 100 fell 0.92%.
• The Dow Jones Industrial Average slipped 0.29%.

Policy & Prices: The Fed Under Pressure

• At a Detroit Economic Club address, President Donald Trump criticized Federal Reserve Chair Jerome Powell and urged deeper rate cuts, the most recent example of volatility between the White House and the Federal Reserve — and more specifically, President Trump and Powell.
• December’s inflation report came in slightly cooler than expected, with consumer prices up 2.7% year-over-year and core inflation at 2.6%, both edging down but still above the Fed’s 2% target. Wholesale price data showed modest upstream pressure, with key measures rising just 0.1-0.4%, though December’s full producer price report won’t arrive until Jan. 30, leaving some uncertainty about the inflation pipeline.
• Retail data offered a mixed read on the consumer. Circana reported flat revenue but roughly a 1% drop in unit volumes in the five weeks to Jan. 3, 2026 — signaling mounting resistance to higher prices. However, the NRF’s Retail Monitor showed 2025 holiday sales up 4.1% to just over $1 trillion, and delayed November Census retail sales rose 0.6% month-on-month, beating expectations and suggesting goods demand ended 2025 with more momentum than feared.

The Week Ahead 

When stock markets reopen after Martin Luther King Jr. Day, investors will focus on a range of key data:

• Personal Consumption Expenditures (PCE) inflation and income data for October/November (Jan. 22) will test the soft-landing narrative and shape Fed rate-cut expectations. On the same day, the Q3 Gross Domestic Product (GDP) revision will confirm whether late-2025 growth near 4% holds. Preliminary January Purchasing Managers’ Index (PMI) for manufacturing and services (Jan. 23) offers the first read on 2026 business activity and pricing pressures.
• The next phase of the earnings season is crucial. After early results and notably cautious 2026 guidance from major banks, strategists say sustaining the S&P 500 and Dow rally now hinges on whether cyclicals (companies with periods of high profits followed by low profits), industrial companies, and consumer‑facing companies can deliver solid 2026 margins, capital‑spending plans, and demand outlooks.

For diversified portfolios, the latest data supports maintaining equity exposure, alongside bond allocations and real-asset positions that can provide balance against potential policy missteps, inflation surprises, or economic deceleration later in 2026. 

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U.S. financial markets ended the first full trading week of 2026 on a broadly positive note, with major equity benchmarks reaching all-time highs. Robust investor participation defied typical early-year caution. The overarching narrative was renewed confidence in a soft-landing scenario rather than a flight to safety, as evidenced by the rotation out of defensive mutual fund structures and into large-cap growth ETFs.

Here are the key takeaways from last week:

Stock Index Performance 

• The S&P 500 increased 1.57%.
• The Nasdaq 100 gained 2.22%.
• The Dow Jones Industrial Average led, rising 2.32%.

Economic Data & Market Drivers

• President Trump’s military operation capturing Nicolás Maduro dominated headlines. U.S. equities barely reacted, as investors judged the conflict to be geographically contained. Energy and credit markets tied to Venezuelan production saw more direct impact, while WTI crude stayed subdued in the mid-$50s as OPEC+ discipline and soft global demand offset supply concerns.
• December payrolls rose just 50,000, well below consensus and recent averages, while prior months were revised lower and unemployment edged down to 4.4% on falling participation. The shift from “hot” to “cooling” eases inflation pressure but raises growth concerns, complicating the Federal Reserve’s calculus as services activity remains firm.
• The ISM Services Purchasing Managers’ Index (PMI) hit 54.4, its strongest 2025 reading, with business activity and new orders solidly expansionary. Yet the ISM Prices Index (an early warning system for inflation) stayed elevated. Additionally, consumer sentiment ticked higher but remains depressed, with inflation expectations sticky in the low-4% range — challenging Fed re-anchoring efforts towards its 2% target.
• The 2-year yield rose 6 basis points to 3.539%, snapping a four-week decline as markets tempered near-term easing bets. The 10-year closed at 4.170% amid competing forces: slower growth supporting duration versus geopolitical risk and policy uncertainty pushing yields higher.

The Week Ahead 

• Over the weekend, news broke of an investigation into Federal Reserve Chair Jerome Powell. Gold futures rose and stock market futures fell on the news. As always, we will be paying close attention to market developments.
• December’s Consumer Price Index (CPI) on January 13th will test whether disinflation is durable after core inflation fell to 2.6% in November — its lowest since early 2021. The Producer Price Index (PPI) and retail sales on January 14th, followed by industrial production on January 16th, will confirm whether softer labor data are cooling demand. Fed speakers are expected to signal whether December’s weak jobs report warrants earlier rate cuts or reinforces a “higher for longer” stance.
• Q4 earnings season begins with major banks testing whether market gains justify analyst expectations for 15% S&P 500 earnings growth in 2026. Bank commentary on credit quality and margins will reveal how higher rates are affecting the economy. Supportive CPI and earnings favor quality cyclicals; surprises could trigger volatility and rotation toward defensive sectors.

The first full week of 2026 confirmed an economy with slowing job gains and upbeat services activity, keeping the Fed data-dependent rather than poised for aggressive cuts. For investors, this argues for staying invested but balanced — emphasizing quality, maintaining diversification, and preparing for volatility as inflation data and earnings unfold.

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December served as a fitting finale to a year that defied expectations, anchored by a classic late-cycle mix: moderating price pressures, a supportive Federal Reserve, and resilient equity markets. This backdrop allowed investors to traverse another rate cut without shaking the prevailing ‘soft-landing’ consensus for 2026.

Leadership shifted noticeably as the year drew to a close. Beyond the “Magnificent 7” and AI-centric stocks, a broader array of companies climbed higher in December. This expansion beyond mega-cap tech suggests a healthier, more balanced market environment as we enter the new year.

Let’s dive into December’s performance, the trends that shaped the month, and the key catalysts we’re watching as we head into 2026.

Major U.S. Stock Indices 

Market averages diverged significantly throughout December. The S&P 500 ended nearly unchanged after a strong annual run, while the Nasdaq 100 surrendered ground to profit-taking despite leading for most of the year on AI and semiconductor strength. The Dow outperformed, rising as year-end capital flowed toward more defensive industrial names.

• The S&P 500 ticked lower 0.05%. 
• The Nasdaq 100 dipped 0.73%.
• The Dow Jones Industrial Average gained 0.73%.

Fed Policy, Minutes, and Dots

• The December 10th Federal Open Market Committee (FOMC) meeting delivered a third consecutive 25-basis-point cut, lowering the funds target to 3.50%–3.75%. Policymakers called growth “moderate,” job gains “slowed,” and inflation “somewhat elevated,” pivoting from inflation concerns toward a more balanced worry about labor market weakness.
• The Summary of Economic Projections telegraphed a shallow easing cycle. Officials penciled in just two more cuts through 2027, with rates bottoming in the low-3% range, far from the pre-pandemic zero-rate era. Growth forecasts hovered near sub-trend, and core inflation drifted toward 2%, reinforcing a long glide path rather than a hard landing.
• Minutes released December 29th revealed a contentious 9–3 vote, the most dissents since 2019. Some officials argued cuts risked reigniting inflation; others warned that holding steady could hurt employment. The decision, officials said, was “finely balanced,” with debate centering on whether disinflation had proven durable enough to justify further easing.

Inflation Cools Further

• The November Consumer Price Index (CPI) report showed headline inflation at 2.7% year-over-year, undershooting estimates and hitting the lowest rate since mid-year. Core CPI climbed 2.6%, with shelter up 3.0%, medical care 2.9%, and household furnishings 4.6% — evidence of cooling but still-sticky core services. Monthly gains of 0.3% for headline and 0.2% for core both came in below consensus.
• Shelter inflation ran at 3.6% annually while gasoline jumped 4.1% month-over-month, yet the overall picture supported a good disinflation narrative: energy’s bounce was more than offset by moderating momentum in shelter and core services.

Hiring Loses Steam

• The unemployment rate rose to 4.6% in November, up from 4.4%. This prompted the Fed to recast the labor market as having “moved toward better balance” with downside employment risks now front and center. Analysts described a low-hiring, low-firing regime: openings have normalized, but layoffs remain historically subdued.
• November payrolls rose just 64,000 — well below the 2025 monthly average and further indication of a cooling labor market. Healthcare and construction added workers, but transportation, warehousing, and consumer-facing sectors shed jobs.

Services Strong, Manufacturing Weak

• Services are still driving growth. The ISM Services Purchasing Managers’ Index (PMI) held at 52.6 in November, its ninth consecutive expansionary print, with business activity at 54.5 and new orders at 52.9. But cracks emerged: the employment index stayed below 50 at 48.9, signaling slower hiring in the services sector.
• Manufacturing told a darker story. The ISM factory gauge slid to 48.2, its lowest reading in four months and the latest sign of ongoing contraction. Purchasing managers cited weak export demand and inventory destocking, a goods recession running alongside resilient services.

The Path Forward

As 2026 begins, the consensus among major strategists is for a soft landing, underpinned by modest growth, inflation drifting closer to 2%, and a measured pace of Fed cuts. For diversified, long‑term investors, the key strategies are unchanged: staying invested, maintaining balance between growth and quality income, and using any periods of volatility as opportunities rather than reasons to abandon the plan. 

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Did Something in This Update Spark Your Interest?

Whether you’re a client or new to us, we’re here to help!

If you have questions or want to learn more, schedule a quick 15-minute call with a member of our team by clicking here.

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Links to third-party websites are for general information purposes only and do not constitute any offer or solicitation to buy or sell any services or products of any kind. The other parties are responsible for the content on their website(s). You are encouraged to read and evaluate the privacy and security policies on the specific site you are entering. They are not intended and should not be relied upon as investment, insurance, financial, tax, or legal advice.