By Jack Kraft, CFA, Vice President, Investment Strategist
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U.S. equities were mixed last week during a busy stretch that included corporate earnings reports and the December Federal Reserve meeting. Investors broadened out equity exposure to more value-oriented stocks as enthusiasm for artificial intelligence (AI) names lost altitude following underwhelming earnings guidance from key companies. The Dow Jones Industrial Average finished the week up 1.0%, while the S&P 500 and the tech-heavy Nasdaq declined 0.6% and 1.6%, respectively.
The U.S. Federal Reserve (Fed) meeting took the main runway event last week as the benchmark interest rate was cut by 25 basis points to 3.50-3.75%. This marked the third consecutive reduction, with chairman Jerome Powell indicating the Fed is now “within a range of plausible estimates of neutral.” Despite the 75-basis-point reduction in rates over the past three meetings, the 10-year benchmark interest rate has largely remained grounded, reflecting ongoing concerns from the bond market on the inflation outlook. The Fed noted risks tied to the labor market as job growth has slowed meaningfully, despite inflation remaining above the 2.0% target. Meanwhile, the Fed announced plans to begin purchasing $40 billion in monthly Treasuries in order to keep liquidity flying smoothly.
Overall, investors’ takeaway from the meeting was positive as two additional rate cuts are being priced in for next year. As an investment strategist, I never give too much weight to “expert forecasts” on what the Fed will do next year, as they are rarely correct. At the moment, I don’t see much progress on the rate front unless inflation can revert back to a historical 2.0% range.
One implication for investors from the meeting is that short, dated Treasuries have started to reflect lower rates amid the steepening of the yield curve. This impacts investors who have enjoyed high-yielding money market funds, which have already started to reflect lower yields. For example, the 3-month T-bill has declined from 4.3% at the start of the year to 3.6%. As the Fed works policy back to a neutral rate in 2026, this yield will start to converge with the current 3.0% inflation rate, resulting in little real return above the rate of inflation.
Looking forward, the economic setup continues to look strong for 2026 amid AI investment, looser monetary policy and fiscal expansion supporting the middle class as tax rebates are projected to increase in April. The Fed will have to find a balance between this economic growth and sticker inflation.
Volatility persisted as investors rotated from growth to value following the Fed meeting and key AI-related earnings. The weakness in growth resulted from earnings reports from Broadcom and Oracle, which both beat analyst expectations, although forward guidance underwhelmed investors. On the heels of these two reports, technology stocks exposed to the AI build-out, such as hyperscalers and utilities, fell out of favor. Meanwhile, financials and materials rose more than 2.0% on the week, while consumer-facing stocks also rallied during the rotation.
One notable area of the market that soared last week was small-cap stocks, with the Russell 2000 ending the week up 2.0%. Smaller companies got a boost on Fed Day last week as they are typically more rate sensitive and often carry more floating-rate debt. Additionally, analyst consensus estimated that S&P SmallCap 600 earnings will rise 19% next year, well above their large-cap counterparts of roughly 13%. Still, the double-digit earnings growth for the broader public sector remains supportive for equities next year.
Looking overseas, investors with well-diversified portfolios likely enjoyed smoother skies amid the turbulence in U.S. technology stocks. In fact, international benchmarks outperformed: the MSCI Emerging Markets Index advanced 0.7% for the week, while the MSCI Europe Index gained 0.3%. This strength reflects a broader trend in 2025, with emerging markets delivering year-to-date returns approaching 30%, flying well above the S&P 500’s 16% gain over the same period. The disparity underscores the value of global diversification in a momentum market.
This is a trend that has the opportunity to continue into 2026 as current U.S. policymakers look to enact looser monetary policy, which can result in a weaker U.S. dollar. Typically, a less strong U.S. dollar is a tailwind for foreign companies because it reduces currency headwinds for U.S.-based investors. Put simply, when the dollar declines, the value of overseas earnings and assets rises when converted back into dollars. Additionally, a weaker dollar increases the competitiveness for non-U.S. companies in global trade. For investors who feel that they are overexposed to the AI trade, these are good options to reduce volatility in the event of a shift in sentiment on the technology sector.
This week, economic data will garner attention as delayed data from the government shutdown continues to hit the tape. On Thursday, an update on the Consumer Price Index (CPI) will be closely watched to see if progress is being made on the inflation front. The November jobs report will also be released on Tuesday and will be closely watched to see if the deteriorating labor market is bouncing back. Other notable reports include the Manufacturing and Services Purchasing Managers Indexes (PMI), Existing Home Sales, and Retail Sales throughout the week. Off-cycle earnings reports will also be in full swing, with corporate profit reports from Lennar, Micron, General Mills, Cintas, Nike, FedEx, Accenture, Darden Restaurants and Carnival Corporation.
Economic Calendar for the Week Dec. 15 to Nov. 19:
| Time (ET) | Report | Period | Median Forecast | Previous |
| MONDAY, DEC. 15 | ||||
| 8:30 AM | Empire State manufacturing survey | Dec. | 10 | 18.7 |
| 9:30 AM | Fed governor Stephen Miran speaks | |||
| 10:00 AM | Home builder confidence index | Dec. | 38 | 38 |
| 10:30 AM | New York Fed President John Williams speaks | |||
| TUESDAY, DEC. 16 | ||||
| 8:30 AM | *U.S. employment report (delayed report) | Nov. | 50,000 | #119,000 |
| 8:30 AM | U.S. unemployment rate | Nov. | 4.50% | 4.40% |
| 8:30 AM | U.S. hourly wages | Nov. | 0.30% | #0.25% |
| 8:30 AM | Hourly wages year over year | #3.8% | ||
| 8:30 AM | U.S. retail sales (delayed report) | Oct. | 0.10% | 0.20% |
| 8:30 AM | Retail sales minus autos | Oct. | 0.20% | 0.30% |
| 9:45 AM | S&P flash U.S. services PMI | Dec. | 54.1 | |
| 9:45 AM | S&P flash U.S. manufacturing PMI | Dec. | 52.2 | |
| 10:00 AM | Business inventories | Sept. | 0.10% | 0.00% |
| WEDNESDAY, DEC. 17 | ||||
| 8:15 AM | Fed governor Chris Waller speaks | |||
| 9:05 AM | New York Fed President John Williams opening remarks | |||
| 12:30 PM | Atlanta Fed President Raphael Bostic speaks | |||
| THURSDAY, DEC. 18 | ||||
| 8:30 AM | Initial jobless claims | Dec. 13 | 223,000 | 236,000 |
| 8:30 AM | *Consumer price index | Nov. | NA | #0.3% |
| 8:30 AM | CPI year over year | Nov. | 3.10% | #3.0% |
| 8:30 AM | *Core CPI | Nov. | NA | #0.2% |
| 8:30 AM | Core CPI year over year | Nov. | 3.00% | #3.0% |
| 8:30 AM | Philadelphia Fed manufacturing survey | Dec. | 3.6 | -1.7 |
| FRIDAY, DEC. 19 | ||||
| 10:00 AM | Existing home sales | Nov. | 4.1 million | 4.1 million |
| 10:00 AM | Consumer sentiment (final) | Dec. | 53.8 | 53.3 |
| #September results. | ||||
| *Limited October and full November results to be combined in one report | ||||
Links to previously published commentaries can be found at Latest Investment Insights