BY STRATEGIC ADVISERS INVESTMENT TEAM — December, 2025
Market Conditions
Third quarter corporate earnings growth was strong. However, official government data releases have resumed following the U.S. federal government shutdown and have shown mixed signals. Reports indicated that housing activity remained weak,1 however, manufacturing picked up slightly.2 Additionally, the U.S. Federal Reserve (the Fed) cut interest rates by 0.25% at its last meeting of the year, aiming to support economic growth against the overall backdrop of a less robust labor market.
- Earnings growth remained strong: U.S. companies continued to show strong year-over-year earnings growth, tracking around 13%.3
- A look into jobs data: Initial jobless claims have ticked higher, however, unemployment filings have remained well below long-term averages.4 Meanwhile, November’s jobs report showed an increase of 64,000 jobs for the month.5
- The services sector showed strength:The most recent Institute for Supply Management (ISM) Services Index came in above expectations and has been in expansion territory since July.6
What it may mean for your portfolio
Despite a recent bout of market volatility, stocks have experienced healthy gains so far this year. These gains have occurred despite several potential areas of concern for investors, including tariffs, geopolitical tensions, and artificial intelligence (AI)-related investments, among others. Consumers also faced concerns surrounding inflation and a softer job market. Many of these areas likely weighed on investor and consumer sentiment throughout the year.
However, while periods of volatility did arise due to many of those concerns, stocks rallied for much of the year. Stocks likely rose because the U.S. economy grew at a healthy pace, and corporate earnings grew faster than expected. Historically, these two factors have had a greater long-term impact on stock performance than short-term events or headlines. This is a main reason why our investment team focuses much of our research in those areas.
Looking ahead to the coming year, some investor concerns may ease, giving way to growing optimism. Tax reform that was passed over the summer may lead to meaningful tax refunds for many consumers, while businesses may benefit from changes to the tax code that could support higher profits. Additionally, the Fed may implement further interest rate cuts to support the economy.
An area we are closely following is the U.S. job market. While unemployment has gradually risen since the start of the year, it remains below its long-term average and is not near levels typically seen during recessions. As the economy continues to grow and corporate profits rise, hiring trends may improve. However, further weakness in jobs may weigh on the economy.
As always, bouts of stock market volatility are possible for any number of reasons. We believe having a well-diversified portfolio may help manage some risk that comes with volatility. For instance, in 2025, clients with well-diversified portfolios experienced much less volatility than the stock market.7 Having a broad mix of U.S. and international stocks, bonds, and short-term investments may provide clients a healthy balance between pursuing growth and managing risk. Our investments in commodities, high-yield bonds, alternatives, TIPS, and REITs may provide further diversification benefits during periods of uncertainty.
Outlook
With the economy still growing and positive earnings growth expectations for stocks around the world, there is potential for investors to see gains in 2026. Areas like the job market may improve as economic growth continues, but we will also be closely watching for signs of further weakness. Bouts of volatility may arise from any number of news headlines. Therefore, a focus on diversification may help investors experience smoother investment returns over time.
We continue to monitor and research developments on the economy, corporate earnings, policy changes, and geopolitical events around the world. We believe the risk of imminent recession remains low. However, we are prepared to act as the situation evolves.
Make a plan, stick with it, and stay invested
Market conditions can change quickly. Historically, the market has shown resilience even when news headlines may feel discouraging. We aim to guide clients through varying market conditions, including those that have seen strong performance over the past two years. As a result, we have maintained healthy exposure to stocks, even during bouts of market volatility. We believe that staying invested and managing risk through evolving market conditions can ultimately help you reach your financial goals in the long run.
