Weekly Commentary (12/30/25) – Strong Growth Data Masks Emerging Crosscurrents

U.S. equity markets moved higher last week as investors responded to better-than-expected economic growth data and further evidence that inflation pressures remain contained, even as several important undercurrents continued to evolve beneath the surface.

For the week, the DJIA gained 1.20% and the S&P 500 advanced 1.41%. The Nasdaq rose 1.23%, supported by continued strength in large-cap growth and technology shares. Small-cap stocks lagged again, with the Russell 2000 up just 0.21%. International markets posted solid gains, as the MSCI EAFE increased 1.20% and the MSCI EM climbed 2.14%. Fixed income delivered modest gains, with the Bloomberg Aggregate up 0.21%. The 10-Year U.S. Treasury yield edged lower by 2 basis points to finish the week at 4.14%. In commodities, Gold jumped 3.85% to $4,529.10 per ounce, while Oil rose slightly, adding 0.39% to $56.74 per barrel.

Economic data released last week reinforced the view that the U.S. economy remains on firm footing. Third-quarter GDP growth was revised higher to 4.3%, significantly exceeding expectations and highlighting the continued resilience of consumer spending and business investment. At the same time, inflation-related data continued to trend favorably, supporting the market’s belief that the disinflation process is intact. This combination helped sustain risk appetite and pushed equity prices higher, despite already-elevated valuations.

That stated, the broader picture remains nuanced. Several employment-related indicators suggested incremental softening in labor market conditions, contributing to a modest decline in consumer confidence. While jobless claims remain historically low, the data point to a gradual cooling rather than a reacceleration, reinforcing the notion that growth may be slowing toward a more sustainable pace.

Beyond the headline data, investors are increasingly debating the durability of several market drivers. Questions continue to build around the sustainability of AI-driven capital spending and the extent to which rising corporate borrowing, particularly among large technology firms, could pressure credit spreads if growth expectations moderate. At the policy level, renewed discussion among economists and policymakers regarding a possible redefinition or widening of the Federal Reserve’s inflation target has added another layer of uncertainty to the outlook for future rate cuts. Meanwhile, geopolitical risks remain elevated, particularly in energy-producing regions, even as oil prices themselves have remained relatively subdued—suggesting a persistent risk premium rather than immediate supply disruption.

Market internals also continue to warrant attention. Beneath the surface of strong index-level performance, dispersion across sectors and market capitalizations remains wide, with leadership concentrated in a narrow set of large-cap stocks. This dynamic leaves overall market valuations stretched and increasingly sensitive to shifts in earnings expectations or policy assumptions.

Looking ahead, the coming week brings a dense calendar of economic releases, including manufacturing and services activity, employment and wage data, job openings, and consumer sentiment. The release of the Federal Reserve’s December meeting minutes will also be closely watched for insight into policymakers’ thinking as the economy transitions into the new year.

We continue to encourage investors to remain disciplined, diversified, and focused on long-term objectives, particularly in an environment where optimism is rising but valuations leave little room for error.

“Do not look for shelter in one corner of the market.” – Howard Marks