January Economic Update

Market Summary

December closed out a volatile finish to 2025, with U.S. equities digesting mixed macro data, shifting Federal Reserve policy expectations, and geopolitical and political headlines. Investors wrestled with late-cycle growth signals, AI sector leadership pressures, and renewed rate-cut speculation into year-end. For the month, the S&P 500 ended up closing nearly flat with a small loss of -0.05%, the Nasdaq 100 closed lower at -0.73%, and the Russell 2000 lagged the major indices losing -0.76%. (1)

Labor Market

The U.S. labor market continued to show signs of cooling. Private hiring remained weak in early December, and while December employment was forecast to show moderate gains with the unemployment rate slightly lower, consensus reflected a slower pace of job creation compared to earlier 2025. (2)

Inflation & Services Activity

November inflation data revealed a cooling trend, with CPI and PCE readings moderating more than expected, providing relief for markets and supporting rate-cut expectations. At month-end, services sector activity strengthened, with ISM’s nonmanufacturing index rising above expectations, suggesting resilience in the broader economy. (3)

Federal Reserve & Policy Commentary

At its December meeting on December 9–10, the Federal Reserve delivered the third rate cut of 2025, trimming the federal funds target by 25 basis points to 3.50–3.75%, the lowest level since 2022. The decision was widely anticipated, and Chair Jerome Powell emphasized that while the Fed expects further easing in 2026, the path remains uncertain and without a “risk-free” trajectory. The FOMC projections signaled only one additional rate cut next year, underscoring the Committee’s caution around inflation and labor market dynamics. Dissent within the Fed was notable, with several members voting against the reduction. (4)

Market pricing shifted during the month as softer inflation and labor data strengthened the odds of future easing, yet resilient pockets in services and employment tempered expectations for aggressive cuts in early 2026.

Political & Policy Impacts

Political developments continued to influence market sentiment. Bipartisan progress on a major housing affordability and infrastructure package offered a potential catalyst for sectors tied to construction and regional banking, while tariff policy and trade ambiguity remained an undercurrent shaping corporate cost structures and inflationary pressure.

Looking Forward…

Investors head into 2026 with mixed signals: softening labor metrics and easing inflation favor continued Fed accommodation, yet pockets of economic resilience and persistent price pressures temper expectations for rapid rate cuts. Market leadership trends — especially within tech and AI sectors — will be crucial in determining the breadth of gains early in the year. Volatility is expected to remain elevated as markets balance growth expectations, earnings trajectories, and shifting monetary policy signals.

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Monthly Financial Tip:

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Citations:

1. Schwab, Dec 31, 2025

2. Investopedia, Jan 07, 2026

3. Financial Content, Dec 18, 2025

4. RBC, Dec 10, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

December Economic Update

Market Summary

November began with broad, yet relatively modest market declines and delivered mixed signals with new private payroll data showed an unexpected drop, manufacturing activity remained in contraction, and tariff-related cost pressures continued to weigh on business sentiment. By the end of the month, the major US market averages had mixed results with the S&P 500 rebounding to add 0.13%, the Nasdaq 100 remaining in the red with a -1.64% decline, and the small-cap Russell 2000 posting a 0.84% return. (1)

Manufacturing, Trade, & Tariffs

The latest data show the U.S. manufacturing sector remains under pressure — the Institute for Supply Management (ISM) manufacturing index slipped to 48.2 in November, signaling contraction. New orders remain weak. A number of forecasters now see the broader economy entering a “mixed-signals” phase: service-sector resilience contrasts with manufacturing softness and hiring weakness. The broader economy continues to generate mixed signals: while some service-sector activity still holds up, trade uncertainty and high input costs are weighing on manufacturing and investment decisions. (2,3)

Fed and policymaker commentary highlighted trade policy and tariffs are feeding into firms’ unit costs and price-setting — a contributor to stickier inflation in some sectors with policy-driven cost pressures remain a major drag. In a November speech, a senior Fed official noted that many firms attribute roughly 40% of 2025–2026 unit cost growth to tariffs and emphasized the risk that price pressures could remain elevated even as the labor market softens. Meanwhile, tariffs are still adding to consumer-price pressures, meaning price inflation may linger even after trade policies stabilize. (4)

Labor Market

ADP reported private payrolls fell by 32,000 in November, a surprising drop that highlights weakening hiring momentum — notably among small businesses. This reading adds to signs the labor market is softening after a strong multi-year run. Planned job cuts moderated in November to 71,321, down from October’s spike but still elevated versus a year ago; layoffs remain concentrated in restructuring and a few large sectors. Weekly initial claims showed variability but other alternate estimates, including some Fed regional models, point to a still resilient but cooling employment picture. The earlier shutdown delayed official BLS releases, complicating comparisons. (5)

Looking Forward…

On December 10, we will receive the last interest rate decision of the year from the Federal Reserve. Both market participants and the Federal Reserve officials themselves are divided regarding whether the decision will be made to cut rates by another 0.25% or keep them at current levels. The Fed’s Minutes from their last meeting, which recaps why policy decisions were made and how which side participants voted, showed one of the most divided Fed Boards we have seen in decades with wide-ranging opinions for what the Fed should do in December.

With manufacturing contracting and hiring losing momentum, growth looks likely to be moderating into the first quarter of the New Year. Tariff-related cost pressures will likely mean inflation may not fall as quickly as a pure demand slowdown would suggest. That combination keeps policy decisions—and market volatility—in play.

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Monthly Financial Tip:

One way to save on auto insurance premiums is to raise your deductible. In some cases, that could lower your annual premium by 10% or more. Of course, you must be able to handle the larger deductible if damage occurs.

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Citations:

1. Schwab, Nov 30, 2025

2. Reuters, Dec 01, 2025

3. Deloitte, Nov 24,2025

4. Fed Bank of Atlanta, Nov 12, 2025

5. Reuters, Dec 03 & 04, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

November Economic Update

Market Summary

Last month saw more tariff threats which were eventually back-pedaled, a Fed announcement with lowering interest rates and a cautionary outlook, and official data flows interrupted by a federal funding impasse, which leaves the outlook for the U.S. economy clouded. Aside from some positive earnings reports from the largest US tech companies, many other earnings reports raised yellow flags. Despite all of this, the major market averages gained spurring more valuation and bubble concerns. The S&P 500 gained 2.29%, the Nasdaq 100 4.8%, and the Russell 2000 added 1.76%. (1)

Tariffs

Tensions have eased between the US and China as Trump backed down from his previous threat. On October 10^th, the Administration threatened a 100% increase for Chinese imports set to begin on November 1st. Just days before the deadline, Treasury Secretary Scott Bessent said trade negations were progressing and that the additional tariff increase was taken off of the table. So for now, it appears this was yet another bluff by the Administration and they were likely never serious about imposing such egregiously high tariffs. (2)

Economic Indicators

The Bureau of Labor Statistics (BLS) was forced to delay the normal monthly jobs report (and other series) due to the federal government shutdown. The absence of timely labor-market data is complicating the outlook for employment and policy-making. The government did manage to release the monthly CPI number which came in at 3.0% year-over-year which was one tenth of a percent higher than the previous month. (3)

The Fed

At the Federal Reserve Board’s meeting on October 29, the Fed cut its target range for the federal funds rate by 25 basis points, bringing it to a range of 3.75 - 4.00 %, which was expected. The policy statement explicitly flagged the shutdown’s data blackout as a risk: “Available indicators suggest… job gains have slowed this year… inflation has moved up… uncertainty about the economic outlook remains elevated.” Fed Chair Jerome Powell noted that a December rate cut is “not a foregone conclusion” which was not anticipated by the market. (4)

Looking Forward…

With many market valuation metrics at or near all-time extremes, there is legitimate concern for a market bubble. Much of the growth we’ve seen over the past couple years has been fueled by speculative investing into AI companies with those valuations skyrocketing – in many cases with price/earnings ratios exceeding 200 when a typical growth company usually trades around a 40 P/E. While a few of these valuations may be justified with lofty growth forecast in the sector, there are many other companies who simple don’t earn enough to rationalize these prices.

Another concern is AI itself replacing jobs, with we have touched on in prior newsletters. With companies such as Target, Amazon, IBM, Microsoft, and others recently announcing laying offs, the question around job replacement is becoming more of a concern with each day that passes. In addition, consumer sentiment continues to fall with the University of Michigan’s sentiment index dropped to near all-time lows, signaling stress on “main street” (the average person).

All of that said, there is a scenario that has been floating around has been named the “K” shape economy, where the top 10% wealthiest individuals continue to prosper and hold up the markets while the bottom 90% struggle with inflation, jobless, and falling real incomes. This is a classic scenario in late-stage capitalism and something on the forefront of our minds with AI potentially being the catalyst for such a scenario.

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Monthly Financial Tip:

Are your antiques and collectibles worth more than they used to be? Their current value should be accurately stated on your homeowner insurance policy. Otherwise, an insurer may not reimburse you for their full value if they are lost or damaged.

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Citations:

1. Schwab, Oct 31, 2025

2. Business Insider Oct 26, 2025

3. Investing.com Oct 24, 2025

4. Federal Reserve, Oct 29, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.