December was another positive month for SPX on a total return basis, while NDX fell for the second straight month.

SPX finished December in positive territory (total return) for an eighth straight month despite some modest intramonth volatility.  Some of the key drivers for the month were fluctuations in expectations of future rate cuts, a flurry of incoming data that was previously delayed due to the Government shutdown, and continued volatility in the crypto space.  Tech lagged once again in December, as the AI-theme remained under pressure.  Following a return of 0.25% in November (total return), SPX (the S&P 500) returned 0.06% (total return) in December.  After returning -1.57% (total return) in November, NDX (the Nasdaq-100) returned -0.67% (total return) in December.  The Russell 2000 returned -0.58% in December after a gain of 0.96% in November.  By the end of the month, SPX & NDX held their key moving averages in December, which we will illustrate later in this note.  For 2025, SPX gained 17.86% (total return), NDX gained 21.02% (total return), and the Russell 2000 gained 12.79% (total return).

High Yield, International, Real Estate, and Bitcoin were mixed in December.  Following a return of 0.58% in November (total return), High Yield (Bloomberg US Corporate High Yield Total Return Index) returned 0.57% (total return) in December.  Following a return of 0.65% in November (total return), the MSCI EAFE Index returned -0.26% in December.  Following a return of 2.33% in November (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned -2.13% (total return) in December.  Bitcoin returned -4.11% in December (Bloomberg Bitcoin Index) after returning -17.01% in November.  For 2025, High Yield (Bloomberg US Corporate High Yield Total Return Index) returned roughly 8.6% (total return), the MSCI EAFE Index returned roughly 32% (total return), Real Estate (Dow Jones US Real Estate Capped Index) returned roughly 3.75% (total return), and Bitcoin (Bloomberg Bitcoin Index) returned roughly -6.5%.

In December, the FOMC lowered its policy rate to a range of 3.50% – 3.75% after a third consecutive rate cut.  In addition to the cut, the Fed announced Treasury Bond purchases of $40B/month to bolster liquidity.  Other than the 25bps cut and Treasury purchase announcement, fixed income markets were mostly driven by expectations of future rate cuts, which dropped intramonth.  Treasuries fell in December, and the short-end of the curve slightly outperformed once again.  The 10-yr closed near 4.16% to end December, up from 4.01% at the end of November, and slightly under the lower end of its important 4.20% – 4.50% technical range.  The 30-year Treasury yield ended December at roughly 4.84%, up from 4.65% at the end of November.  Over the past several months and years, the correlation between equities and fixed income has been notably high – and likely will remain so.  Additionally, the 2/10 Treasury yield spread steepened in December.  The 2/10’s record-long inversion came to an end in the second half of 2024.

Due to the Government shutdown, there was bifurcated data that was released once again during the month December.  PCE printed 0.3% M/M, matching the consensus.

The next Fed meeting will take place on 1/27-1/28, and there is no cut expected.  Looking ahead, and as of the end of December, the market is pricing in roughly 25bps for 2026 (one cut).  The Fed continues to target 2% inflation as its goal, and incoming inflation reports will likely continue to drive the dot plot.  However, the Fed has cut rates multiple times despite inflation remaining above the 2% target.  Furthermore, the weaking employment picture will play a major role in future cuts.

According to FactSet, the trailing 12-month P/E ratio for SPX is 28.5 which is above the 5-year average (25.0), and above the 10-year average (22.0).  The forward 12-month P/E ratio for SPX is 22.2, which is above the 5-year average (20.0), and above the 10-year average (18.7).  Additionally, per FactSet, SPX is expected to report Y/Y revenue growth 7.6% for Q4 2025, which is above the estimate of 6.4% on 9/30.  Finally, per FactSet, SPX is expected to report Y/Y earnings growth of 8.3% for Q4 2025, which is above the estimate of 7.2% on 9/30. 

Within commodities and currencies: WTI Crude Oil fell in December by roughly 1.4% to close near $58/bl.  Gold rose by 1.9% in December and closed out the year above $4300/oz, representing a roughly 64% gain in 2025.  Finally, the USD/DXY fell M/M and closed out December near 98.30.  2025 was one the weakest years for the USD in several decades.

VOLATILITY UPDATE

After closing out November near 16.30, the VIX Index finished December near 15 as volatility fell M/M.  The VIX remained under 20 during December after printing near 30 in November at one point.  The 12-month high of the VIX Index was registered on 4/7/25 at 60.13.  In 2022, the VIX averaged over 25.  In 2023, the VIX averaged near 17.  And in 2024, the VIX averaged near 15.50.

The MOVE Index calculates the future volatility of US Treasury yields implied by current prices of options on Treasuries of various maturities.  It is thought of as “The VIX Index of the Bond Market.“  After closing out November near 69, the MOVE Index closed out December near 63.50.  The MOVE continues to print very low numbers.  The 12-month high of the MOVE Index was registered on 4/8/25 at 139.88.  Traders will continue to monitor this index to gauge potential future bond and equity volatility.  Equities tend to favor a subdued MOVE Index – and a low MOVE Index has been the case over the past 6 months.

LOOKING AHEAD

Among other factors, the market will be adjusting to and watching employment data, US trade policy headlines, inflation, earnings, yields, and fiscal policy.  On the inflation front, December’s CPI will be released on 1/13, and November’s PPI (due to a delay), will be released on 1/14.  Finally, the next FOMC meeting will take place on 1/27-1/28, and the market is expecting no cut.