Portfolio Manager Commentary

December 15, 2025

Economic Outlook

In November, the ISM Services PMI registered 52.6, indicating the strongest growth in the services sector in nine months. The NFIB Small Business Optimism Index rose to 99.0, still near its average value in 2025. The net percentage of small business owners raising average selling prices rose to the highest level since March 2023. Labor market conditions show signs of softness, with weekly initial jobless claims rising sharply to 236,000 for the week ending December 6. Private employers shed 32,000 jobs in November, while average hourly earnings rose 4.4% year-over-year. Last month’s U.S. employment report is scheduled to be released on December 16. Meanwhile, the Consumer Price Index data will be released on December 18. Consumer sentiment remained subdued, with the University of Michigan Consumer Sentiment Index posting a preliminary December reading of 53.3, little changed from November. The average interest rate for a 30-year fixed-rate mortgage was approximately 6.33% as of December 5, approaching the lowest levels seen over the past 3 years.

Fixed Income

Following the FOMC’s third consecutive 25 bps rate cut last week, the Fed’s target range is now 3.50%–3.75%. However, the vote was not unanimous as two voters preferred no change, while a third voter sought a 50 bps rate cut. Looking at the updated dot plot, policymakers expect one 25 bps rate cut in 2026. However, the range of expectations varies significantly, with three members expecting a rate hike by year end while one member expects the equivalent of six 25 bps rate cuts. Alongside the rate move, the Fed began repurchasing ~$40 billion in Treasury bills last week to ease funding pressures. Chair Powell said the committee is “well positioned to wait and see,” noting that reserves will stay elevated for a few months before tapering, marking a shift toward liquidity support after years of tightening.

Yield Curve

Current Generic Bond Yields

Equities

After two years of +20% returns for the S&P 500, the index is on track for another year of double-digit returns. From a valuation perspective, the S&P 500 index began the year with a trailing P/E Ratio of approximately 27.3 and currently sits at 27.8. Said differently, nearly all the index’s return in 2025 can be attributed to earnings growth, as opposed to valuation expansion. After underperforming the S&P 500 in 12 of the past 15 calendar years, international developed stocks are currently positioned for the best year of relative outperformance this century.

In 2025, the best performing U.S. sectors have been Communication Services (+31.66%), Information Technology (+23.18%), and Industrials (+20.28%). The worst performing sectors have been Real Estate (+2.58%), Consumer Staples (+5.45%), and Consumer Discretionary (+6.50%), On a total return basis, the Russell 1000 Growth Index has returned 17.99% year to date, while the Russell 1000 Value Index has increased 16.14% over the same period.