Weekly Investment Perspective

Markets closed a busy week with a mixed tone as investors digested the Federal Reserve’s final meeting of the year, a shifting labor backdrop, and ongoing sector rotation. The Fed delivered its third consecutive quarter-point rate cut, bringing the target range to 3.50%–3.75%, while signaling a potential pause ahead. Chair Powell emphasized caution, noting that official payroll data may have overstated job growth by as much as 60,000 per month—a reminder of the data fog following the fall shutdown.

Equities reflected this uncertainty. The S&P 500 touched a record midweek before slipping on Friday, finishing slightly lower for the week. The Dow and Russell 2000 outperformed with gains of 1.10% and 1.21%, respectively, for the week. While the Nasdaq lagged as tech names faced renewed scrutiny. AI infrastructure stocks, which had been market darlings, stumbled after strong earnings results from Oracle and Broadcom fell short of extended investor expectations. Meanwhile, cyclicals and value sectors—banks, insurers, industrials—found support as investors rotated toward areas benefiting from a steeper yield curve and resilient domestic demand.

Commodities and currencies added their own color. Gold surged more than 2% as investors sought a hedge against policy uncertainty, while crude oil extended its decline, ending the week down roughly 4%. Treasury yields backed up at the long end, reflecting the push-pull between easing policy and lingering inflation concerns.

Economic signals remain nuanced. Job openings have rebounded since late summer, and small-business surveys show hiring intentions improving, yet the hiring rate is still depressed and quits have fallen to multi-year lows—workers are staying put. Initial jobless claims were choppy due to seasonal factors but remain consistent with a slow-hiring environment rather than a surge in layoffs. Consumer spending continues to lean on wealth effects, but those benefits are concentrated among higher-income households. Low-income households, more exposed to past inflation shocks in essentials like rent and energy, remain under pressure, underscoring the bifurcation in the economy.

The Fed’s interest rate cuts are likely done for now, with policy to stay on hold in the first part of 2026. Inflation is moderating but remains above target, while productivity gains are enabling growth with fewer net hires—a “jobless expansion” narrative that could define the coming year. For investors, this environment favors quality balance sheets, cash flow resilience, and diversification across cyclical and defensive exposures.

This week will be headlined by the release of November nonfarm payrolls and CPI, alongside retail sales and housing indicators. Markets will also watch earnings from blue chip companies like Accenture and Nike for clues on tech demand and consumer trends. With fiscal tailwinds from larger tax refunds set to arrive early next year, and AI investment still robust despite recent volatility, the near-term outlook remains constructive—but selective positioning is key as dispersion across sectors intensifies.

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