Weekly Market Update: December 22, 2025
The Federal Reserve did both the expected and unexpected at the December Federal Open Market Committee (FOMC) meeting earlier this month. To nobody’s surprise, the bank cut the benchmark short-term interest rate by a quarter point, to a range of 3.50% to 3.75%. Not anticipated was the Fed’s resumption of short-term Treasury bond repurchases. Both actions are designed to pump more liquidity into the financial system in an effort to support economic growth.
The balance of risk has shifted to the labor market. The November employment report showed that the nation created an estimated 64,000 jobs last month. This exceeded the consensus forecast of 45,000, but still was running well below the level considered to be indicative of healthy job creation. Likewise, the unemployment rate ticked up, to 4.6%, the highest level since July, 2021.
Meanwhile, the 2026 outlook for the U.S. economy is improving. On point, the Federal Reserve raised its gross domestic product (GDP) forecast by a half percent-age point, to 2.3%. Fed Chairman Jerome Powell noted that higher prices due to increased tariffs are likely to ease over the next 12 months. This moderation, along with regulation rollback and the tax cuts from the One Big Beautiful Bill Act, should aid the domestic economy. That said, there are pockets of weakness, with activity in both the housing and manufacturing sectors still sluggish.
The backdrop is in place for continued corporate earnings growth. Wall Street is forecasting S&P 500 earnings of $310 to $320 a share in 2026. If achieved, it would represent another double-digit profit advance and help justify the Index’s elevated valuation. The price-to-earnings multiple for the Index exceeded 22 times as 2025 neared its conclusion, a level above both its five- and 10-year averages.
Conclusion: The major equity indexes are on pace to end 2025 at or near record highs. This leaves many stocks trading at a level priced for perfection and susceptible to some selling on disappointing news. However, with the Fed on a less-restrictive monetary policy course and the variables in place for the economy to reaccelerate, equities may take another step higher in 2026. Thus, investors may want to maintain a diversified portfolio led by stocks.
Source: ValueLine.com
