Market Cycle Update – December 2025

Sound Planning Group Team

Welcome to our comprehensive monthly analysis of the market’s performance and short-term outlook. At SPG and in partnership with Synergy, we pride ourselves on our data-driven approach, utilizing sophisticated analysis that encompasses 65 technical, fundamental, and economic factors to provide a well-rounded assessment of the market’s current state. Our dynamic methodology helps us to establish our market outlook as either bullish or bearish, aiding in our process to make strategic portfolio decisions and tactical allocation adjustments.

Every month, our team diligently analyzes these technical, fundamental, and economic factors, meticulously scoring each one as either bullish or bearish. We then consolidate the scores to form a hypothesis on the current mood of the markets. This thorough process allows us to gain valuable insights into the prevailing sentiment and helps us make better informed decisions to navigate the dynamic financial landscape.

Our Tactical Market Cycle Assessment for December returned to a bullish posture, with 52 bullish factors and 13 bearish factors, resulting in an 80% bullish score versus a 20% bearish score. This represents a meaningful improvement from November’s 44.6% bullish reading and reflects a renewed expansion in risk appetite, supported by improving macroeconomic data, a shift toward monetary easing, and resilient corporate earnings.

Several developments have driven this improvement. After months of delayed and uneven releases, economic data resumed and came in broadly better than expected. Inflation continued to cool, while labor market conditions moderated slightly rather than deteriorating sharply, reinforcing confidence in a soft-landing scenario and reducing near-term macro uncertainty.

Corporate fundamentals remained a key source of support. Earnings results and company updates showed profitability holding up well, with stable margins and constructive guidance reinforcing confidence in earnings as a durable foundation for equity markets. Valuation discussions within parts of the AI complex led to short-term pullbacks but ultimately reflected healthy digestion following a period of strong performance, rather than broader market weakness.

Federal Reserve policy also played an important role during December. The Fed implemented a rate cut during the month, confirming a gradual shift toward a more accommodative stance following progress on inflation. This action, alongside expectations for further easing in 2026, confirmed in the Fed’s December Summary of Economic Projections, helped support financial conditions and risk assets during the month.

Looking ahead, December’s recovery improved the near-term setup for January, but markets enter the new year with more balanced expectations. Momentum has stabilized, supported by easing inflation and resilient earnings, while elevated valuations and upcoming economic data argue for continued selectivity rather than broad-based risk-taking.

The Bulls

Large-Cap Breadth

The percentage of S&P 500 stocks trading above key moving averages improved during December. This indicates strengthening participation beneath the surface and supports the view that market momentum broadened following a brief period of consolidation.

Bond Markets

The US bond market faced selling pressure during December, with bond prices largely flat despite the rate cut. This suggests reduced demand for defensive fixed-income assets in the short term and is consistent with expanding risk appetite for equities.

Small-and Mid-Cap Stocks

Small- and mid-cap stocks showed relative improvement during the month. Strength beyond large-cap leadership suggests a healthier market advance and reduced concentration risk, partially easing concerns about AI-driven dominance among large-cap stocks.

Buying Power

Buying power indicators strengthened across the NYSE, indicating improving demand. Rising buying power supports the view that investors have recently become more confident as macro uncertainty eased.

Investor Sentiment

Investor sentiment, as measured by the AAII survey, improved meaningfully, with bullish readings rising from 32% in late November to 44.1% by mid-December. While sentiment moderated toward month-end, it remained more positive overall, indicating reduced pessimism.

The Bears

Momentum Indicators

Momentum indicators for both the S&P 500 and the NYSE remained at contractionary levels during December. While short-term participation improved, the share of stocks on confirmed buy signals remains limited, suggesting broader trend confirmation has not yet fully reestablished.

Distribution Days

Short-term distribution days remained relatively muted during December, suggesting limited immediate selling pressure. However, longer-term measures of distribution continued to reflect some caution, consistent with modest profit-taking and portfolio rotation near year-end.

Risk-Off Behavior

Mean reversion indicators, including the Hurst ratio, suggest the Nasdaq Composite and Dow Jones Industrial Average may face short-term pullback risk. At the same time, bonds remain in a longer-term uptrend as rates come down, which can weigh on equities as fixed income becomes more attractive.

Equity Yield vs. 10-Year Treasury Yield

The relative equity yield versus the 10-year Treasury remained less supportive for equities throughout December. This highlighted continued competition between equities and fixed income as investors weigh relative return and risk.

Monthly Recap

In our monthly analysis, we provide a comprehensive overview of key developments across various financial fronts, including equity markets, inflation trends, interest rate fluctuations, Federal Reserve actions, corporate earnings performance, and noteworthy geopolitical events. This report offers a detailed examination of these critical factors to facilitate a better understanding of the economic landscape.

Financial Markets

Stocks posted a mixed month, with value outperforming growth. Major indexes reached new highs before slipping in the final days of December, as holiday optimism, manageable inflation, a Fed rate cut, stronger-than-expected Q3 GDP, and solid corporate guidance supported markets but were offset by year-end profit-taking. By month-end, the S&P 500 was essentially flat, down 0.05%, the Nasdaq slipped 0.53% amid rotation out of high-growth names, and the Dow Jones Industrial Average led with a 0.73% gain as investors favored value.

Inflation

December Inflation Data

Inflation data released in December played a key role in supporting positive market sentiment throughout the month. The November CPI report, published after October’s release was canceled due to the federal shutdown, came in below expectations and reinforced confidence that inflation pressures continue to cool.

Headline CPI rose 2.7% year over year and core CPI increased 2.6%, both meaningfully lower than September’s 3.0% readings and consistent with a more favorable inflation backdrop as markets headed into year-end.

Beneath the surface, price trends were mixed but broadly contained. Grocery inflation remained modest at 1.9% year-over-year, dining out costs rose 3.7%, and shelter inflation slowed to a relatively subdued 3.0%. Energy prices increased 4.2% annually, though dispersion remained wide, with gasoline prices up just 0.9% compared with a 6.9% rise in electricity. Vehicle inflation varied, with new vehicles up 0.6% and used vehicles up 3.6% from a year ago.

While some economists, including New York Fed President John Williams, noted that the absence of October data may have slightly distorted certain CPI components due to the BLS needing to make more statistical assumptions, markets focused on the broader tone of the data. The report reinforced confidence that inflation is trending in the right direction, helping to ease inflation-related concerns, support risk appetite, and contribute to the constructive market tone that prevailed throughout much of December.

Interest Rates

Treasury Yields

Treasury yields were mixed in December, reflecting the contrast between near-term monetary easing and upward pressure on longer-term rates. Short-term yields moved lower as the Federal Reserve implemented a 25-basis point rate cut, with the 3-month Treasury yield declining from 3.88% to 3.65%. The 2-year yield was relatively stable throughout the month and ended near 3.45%, suggesting that expectations for inflation appear stable and anchored within a controlled range.

In contrast, longer-term yields edged higher during the month. The 10-year Treasury yield rose from 4.02% to 4.14%, while the 30-year yield increased from 4.67% to 4.81%. The rise in long-term yields, despite Fed funds rate cuts, indicates that term premiums and longer-run inflation and fiscal concerns continue to keep upward pressure on the long end of the yield curve.

Mortgage Rates

Mortgage rates declined further in December, finishing the year at their lowest level in roughly 15 months. The average 30-year fixed mortgage rate ended December at 6.15%, extending a steady downward trend that played out over the course of the year.

30 Year rates began 2025 just under 7% and moved gradually lower as the Federal Reserve delivered several rate cuts and incoming economic data pointed to controlled inflation and steady growth. This decline in mortgage rates should modestly improve affordability for homebuyers heading into the new year and could help support increased housing activity as the spring season approaches.

The Federal Reserve

December Meeting

The Federal Reserve held its final meeting of the year in December and delivered a widely expected 0.25% rate cut, the third rate cut of the year, lowering the federal funds target range to 3.5% – 3.75%.

More insight came from the Fed’s updated Summary of Economic Projections, which showed little change from the prior quarter, and the few adjustments that were made were positive. Growth expectations were adjusted slightly higher, with real GDP now projected at 1.7% in 2025 and 2.3% in 2026.

Unemployment forecasts were unchanged from last quarter’s SEP, with the Fed still expecting the employment rate to settle around 4.4% by the end of 2026, modestly below November’s 4.6% reading. Inflation projections moved slightly lower for year-end 2025 and 2026, reinforcing the view that price pressures are gradually moving in the right direction.

Source: Federal Reserve

The key takeaway, as it is the only element the Fed can directly control, was that the projected rate path remained unchanged. The central bank continues to pencil in one additional rate cut next year, bringing the federal funds target range to 3.25%–3.5%, with markets welcoming the absence of surprises.

Futures markets, however, are leaning more dovish than the Fed’s forecast. Current pricing implies roughly a 75% chance of two or more rate cuts by year end, with meaningful odds of a first move as early as the first quarter. Currently, markets assign about a 16% probability to a 25 basis-point cut in January and a 50% chance of at least one cut occurring in either January or March.

Source: CME Group FedWatch, as of 12/30/25

The blend of Fed guidance and futures markets pricing remains an important source of interest rate expectations heading into the new year. Attention will also turn to leadership changes at the Fed, with Chair Powell’s term set to end in 2026 and a successor to be nominated by President Trump. The possibility of a more dovish chair adds another variable to the monetary policy outlook, reinforcing the Fed’s central role in shaping market expectations as investors continue to gauge whether the economy can achieve a soft landing.

Corporate Earnings

Q4 2025 Earnings Wrap-Up: Momentum Moderates but Remains Supportive

As the year concludes, earnings expectations for the S&P 500 continue to reflect a stable profit backdrop. According to FactSet, Q4 2025 earnings are estimated to grow 8.3% year over year, which, if realized, would mark the tenth consecutive quarter of earnings growth. Notably, earnings estimates have increased modestly since the start of Q4, diverging from the typical seasonal pattern of downward revisions by both companies and analysts.

Geopolitical Events

Gold & Silver: New Highs Driven by Rates and Hedging Demand

Gold and silver reached new all-time highs in December, extending gains from November. Prices were supported by expectations for future rate cuts, a softer yield environment, and continued demand for portfolio hedges, even as broader geopolitical tensions eased. Toward month-end, both metals saw modest pullbacks, reflecting year-end profit-taking and portfolio rotation.

Digital asset markets remained volatile in December. Following November’s sharp drawdown, Bitcoin traded in a choppy range and failed to regain sustained upward momentum, remaining below $90,000. Thin liquidity, regulatory uncertainty, and cautious institutional positioning continued to weigh on sentiment, keeping price action uneven.

Energy Markets: Demand Pressures Dominate as Geopolitical Risks Ease

Oil prices remained volatile and down-trending in December, as concerns over slowing global demand and elevated inventories outweighed geopolitical risks, including potential progress in Russia–Ukraine negotiations. The absence of significant supply disruptions limited upside pressure, reinforcing a cautious outlook for crude heading into early 2026.

Summary

December saw an improvement in market conditions, with our Tactical Market Cycle returning to a bullish posture as cooling inflation, a Fed rate cut, and resilient earnings supported risk-on assets. Economic data generally reinforced a soft-landing narrative, participation broadened beyond large-cap leaders, and policy clarity helped stabilize sentiment despite pockets of valuation and momentum caution. Overall, the month ended with a solid foundation heading into January, though markets enter the new year with more balanced expectations and an emphasis on selectivity.

Thank you for your trust.

The SPG & Synergy Teams

The information contained herein is general in nature. It does not take into account your particular investment objectives, financial situation, or needs. It is provided for illustrative or informational purposes only, and should not be construed as advice. Our advisors can meet with you to discuss your retirement plan.

Content is used with the permission of Synergy Asset Management. This information is being provided to you as it has been determined by SPG Advisors LLC to be suitable in relation to your portfolio, needs, objectives, and other considerations. SPG Advisors, LLC and Synergy Asset Management are affiliated. All such information is provided solely for convenience, educational, and informational purposes only. Past performance does not guarantee future results. All investing comes with risk, including risk of loss. No investment strategy can guarantee a profit or protect against loss in periods of declining values. All rights reserved. No part of this publication may be reproduced, distributed or transmitted in any form without the prior written permission of the publisher.

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