As expected, the Federal Reserve cut interest rates by 25 basis points last week. More surprising was the Fed’s upbeat assessment of the economy in its Summary of Economic Projections (SEP).
The SEP, released four times per year, suggested:
- Stronger economic growth
- A lower unemployment rate
- Continued progress on inflation
In addition, investors welcomed the resumption of Federal Reserve asset purchases, with $40 billion scheduled over the next 30 days.
Markets initially rallied on the news, pushing the S&P 500 to a fresh high, before retreating on Friday as investors digested the Fed’s message.
Market Performance – Weekly Recap
Markets for the week:
- Dow Jones Industrial Average: +1.17%
- S&P 500: (0.60%)
- Nasdaq: (1.46%)
- Russell 2000: +1.48%
- Foreign Stocks: +0.70%
- Emerging Markets: (0.79%)
The 10-year U.S. Treasury finished the week higher, yielding 4.186%.
With the Fed’s modestly optimistic economic outlook, additional rate cuts may not be imminent unless incoming data proves weaker than expected.
Key Economic Data This Week
The Fed’s assessment will be tested quickly as several important economic reports are released:
Tuesday
- November Jobs Report (delayed due to the government shutdown)
- October Retail Sales
Thursday
- Consumer Price Index (CPI)
Each of these data points plays a critical role in shaping future Federal Reserve policy decisions.
High-Yield Savings Rates – The Cycle Turns
It has been a pleasure over the past year to earn attractive yields on savings and emergency funds. As recently as last year, many investors were earning approximately 4.5% on high-yield savings accounts.
These rates are closely tied to short-term Treasury bill yields. To put recent declines into perspective:
- The 2-year U.S. Treasury peaked at 4.5% on June 2, 2025
- As of last Friday, it yielded 3.681%
- 1-month through 6-month T-bills now range between 3.5% and 3.68%
Declining rates naturally mean less monthly interest income on cash. However, falling rates in 2025 have also:
- Lifted the overall bond market
- Provided cheaper liquidity for the stock market
With investing, it’s often difficult to have your cake and eat it too.
Santa Claus Rally?
The Santa Claus Rally is a well-known market phenomenon that typically occurs during the last five trading days of December and the first two trading days of the new year.
Many market participants are watching closely to see whether the S&P 500 can break the 7,000 level. The good news: we won’t have to wait long to find out.
As year-end approaches, 2026 forecasts and projections will soon dominate the financial media.
Looking Ahead to 2026
2025 was not an easy year to predict.
Before January 1, 2025:
- Did anyone expect AI to dominate market returns?
- Did many anticipate the range and depth of tariffs?
In my view, 2025 delivered more curveballs than most years. My early thoughts for 2026: expect more of the same. We’ll be sharing additional perspective on the year ahead over the coming weeks.
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As always, thank you for reading.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
All market data sourced from The Wall Street Journal, December 12, 2025.
