Cautious Fed and Steady Markets into Year-End

Weekly Market Commentary | Week of Dec 8^th, 2025

A Recap of Economic and Financial Trends from the Prior Week

By: Khadija Farooqi, The Quinnipiac University Global Economics Research Team

Last Week in Review

• The Fed delivered a third rate cut while emphasizing uncertainty ahead, as mixed inflation data and softer labor indicators pointed to a cooling economy.

• U.S. and global equities posted modest gains, while policy developments in AI, immigration, and fiscal legislation shaped broader market sentiment.

• New analysis highlighted a front-loaded economic boost from the One Big Beautiful Bill and a housing market that is holding firm.

Economic Recap

Recent data releases provided important context for the Federal Reserve’s December decision, where officials delivered a third consecutive rate cut while stressing that the future path of policy remains uncertain. The meeting highlighted widening divisions inside the Committee, with Stephen Miran supporting a larger fifty basis point cut and Austan Goolsbee and Jeffrey Schmid preferring to keep rates steady, a rare split that underscored differing views on how quickly the labor market is softening. Chair Jerome Powell noted that inflation has “moved up” and “remains somewhat elevated,” and the meeting carried additional significance because his term ends in May while President Trump has signaled plans to name a successor early in 2026.

Inflation data offered a mixed backdrop, with September CPI rising 0.3 percent for headline and 0.2 percent for core month over month and both up 3.0 percent year over year, supported by a 4.1 percent increase in gasoline prices and a 0.2 percent rise in core goods despite tariff pressures. The Fed’s preferred PCE (Personal Consumption Expenditures) measure showed similar trends, with headline and core both up 2.8 percent year over year. Labor indicators pointed to a cooler environment as ADP reported a decline of 32,000 private payrolls in November, the largest drop since March 2023, while Challenger reported more than 71,000 job cuts, the highest November total since 2022, even as initial jobless claims fell to 191,000. Activity surveys remained mixed, with the ISM manufacturing index slipping to 48.2 percent and services rising to 52.6 percent. Consumer sentiment improved modestly to 53.3 as expected inflation fell to 4.1 percent. The close of the third quarter earnings seasons also provided insight into corporate conditions, with earnings up 13.0 percent year over year compared with expectations of 7.3 percent, while technology and financials led performance and energy and consumer companies faced pressure from lower oil prices, price sensitivity, and tariffs.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (December 8^th, 2025). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Equities posted modest gains for the week, with the S&P 500 up 0.35 percent, the Dow Jones up 0.62 percent, and the Nasdaq rising 0.93 percent. Small caps also advanced, and international benchmarks were mostly higher as the MSCI EAFE gained 0.77 percent and MSCI Emerging Markets rose 1.43 percent. European markets improved on expectations for future rate cuts, while Japan saw mixed performance as a hawkish Bank of Japan speech pushed yields higher and strengthened the yen. Chinese equities edged up despite continued contraction in manufacturing and services activity. In fixed income, U.S. Treasuries declined as long-term yields rose, while municipal bonds outperformed Treasuries but still ended lower. High yield bonds gained on firmer macro conditions and improved liquidity. Within U.S. large caps, JPMorgan lagged after shares fell more than 4 percent when management projected higher than expected 2026 expenses of roughly $105 billion tied to higher credit card marketing, compensation, AI investment, and inflation-related costs.

Calendar Events

Economic Data:

• Dec. 9 (Tues): Job openings (Oct, delayed)

• Dec. 10 (Wed): FOMC interest-rate decision; Monthly U.S. federal budget (Nov)

• Dec. 11 (Thurs): U.S. trade deficit (Sept)

Major Corporate Earnings:

• Dec. 9 (Tues): GameStop Corp. (GME) – Q3 2025 Earnings Announcement; The Campbell’s Company (CPB) – Q1 2026 Earnings Announcement

• Dec. 10 (Wed): Oracle Corporation (ORCL) – Q2 2026 Earnings Announcement; Adobe Inc. (ADBE) – Q4 2025 Earnings Announcement

• Dec. 11 (Thurs): Costco Wholesale Corporation (COST) – Q1 2026 Earnings Announcement; lululemon athletica inc. (LULU) – Q3 2025 Earnings Announcement

Market Themes

AI Race Heats Up as OpenAI Accelerates GPT-5.2 and Nvidia Re-Enters the China Chip Market

OpenAI is preparing to release GPT-5.2 ahead of schedule after CEO Sam Altman reportedly declared a “code red” in response to Google’s Gemini 3, which surpassed ChatGPT across multiple benchmark tests, including abstract reasoning and scientific knowledge. Gemini 3 also set a record on Humanity’s Last Exam, prompting Altman to call it a “great model” while urging internal teams to accelerate improvements. An internal memo claimed GPT-5.2 is already outperforming Gemini 3 in OpenAI’s evaluations, driving the decision to move the release timeline from late December to as early as December 9. The launch comes less than a month after GPT-5.1 introduced enhanced accuracy and new user “personality” modes. Meanwhile, U.S.–China chip dynamics resurfaced after the U.S. approved Nvidia’s advanced H200 chip for sale to “approved customers” in China in exchange for a 25% revenue cut. Analysts warn China may restrict or decline purchases to preserve its push for semiconductor self-sufficiency, despite the H200’s clear performance lead and domestic supply shortages.

Legal Pressures Mount Over Trump’s Immigration Orders

The latest actions highlight the administration’s broader effort to sharply tighten the U.S. immigration system, with President Trump framing refugee admissions and immigration vetting as national security priorities from his first day in office. The “Day 1” suspension of refugee arrivals reflects the administration’s view that the United States has faced what Trump describes as “record levels of migration,” prompting a sweeping pause while policies are realigned. That approach extends beyond refugee processing. A new USCIS memo directed officers to halt immigration proceedings for nationals from 19 countries covered by Trump’s recent travel bans and to conduct a comprehensive re-review of pending benefit requests, including green cards, asylum cases, and naturalization applications. Officials argue the freeze is necessary to reassess vetting protocols and ensure, in the words of a DHS spokesperson, that individuals becoming citizens are “the best of the best.” The administration has also linked this effort to national security concerns following the late-November shooting of two National Guard members in Washington, DC, in which an Afghan national admitted under Operation Allies Welcome has been charged. Together, the refugee suspension and broad pause on immigration processing emphasize a shift toward a more restrictive, security-centered framework that prioritizes caution over speed. If sustained, these policies could reshape the pace and composition of future immigration flows, while ongoing court challenges will determine how broad the president’s authority can be as the system becomes more stringent.

Chart of the Week

Source: Apollo Academy, “Significant Fiscal Boost Coming in 2026,” 2025. (Chart © Apollo Academy. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

The Congressional Budget Office estimates the One Big Beautiful Bill will increase GDP by 0.9 percent in 2026, reflecting an unusually front-loaded boost driven by the bill’s allowance for businesses to immediately deduct capital expenditures beginning January 1, 2026. This provision accelerates investment in equipment and R&D and temporarily lifts aggregate demand. However, the long-term impact is considerably smaller. By 2034, CBO projects the GDP effect will fade to about 0.4 percent, consistent with other analyses that find stronger early gains give way to weaker long-run outcomes as higher deficit financing raises interest costs and gradually crowds out private investment. The divergence between short-term stimulus and long-term drag is a common theme across dynamic models. While the Senate version produces more persistent growth due to permanent expensing, estimates from the JCT (Joint Committee on Taxation), PWBM (Penn Wharton Budget Model), and the Tax Foundation all show that most of the economic lift occurs in the initial years, with impacts diminishing or turning negative as fiscal pressures accumulate. The chart highlights that OBBB’s economic benefits are real but time-limited, with its strongest effects concentrated in the first decade before fading under the weight of larger structural deficits.

Market Outlook

With the December Fed decision now behind us, markets are shifting focus to how quickly policy easing may proceed against gradually cooling economic data. The labor market shows signs of softening through weaker private payrolls and elevated job cuts, even as claims remain low and sentiment improve modestly. Inflation readings will take on greater importance given the committee’s cautious tone and the visible split among members over the appropriate pace of cuts. In fixed income, higher long-term yields continue to pressure Treasuries while municipals and high yield remain supported by steady demand. International conditions are mixed, with incremental stabilization in parts of Europe offset by softer activity in Japan and ongoing structural headwinds in China. As AI investment continues to influence corporate behavior and market leadership, the interaction between technological developments and macro conditions will remain an important area to monitor through year-end and into early 2026.

Note: Professor Chris Ball’s recent global update emphasizes that the world economy is slowing unevenly, with cyclical resilience in some regions and persistent structural challenges in others. This broader pattern of divergent momentum aligns with the mixed international backdrop highlighted in this outlook and provides useful context for assessing how global conditions may influence markets. Read A Quick Look at the Global Economy.

Heard It on a Pod

Thoughts on the Market – U.S. Housing Outlook

In a recent episode of Morgan Stanley’s Thoughts on the Market, Jay Bacow and Jim Egan explained that Fed rate cuts do not directly lower mortgage rates, but expected compression between primary mortgage rates and Treasuries should help bring the 30-year fixed mortgage rate toward 5.75 percent by the end of 2026, improving affordability only modestly. They expect purchase volumes to grow about 3 percent next year as affordability improves and inventory increases, although the lock-in effect, which occurs when homeowners are reluctant to sell because their existing mortgage rate is far below current market rates, will continue to limit supply. Inventory levels are up roughly 30 percent from their lows in 2023 but remain below 2019, which helps support home prices while capping upside momentum. Bacow and Egan noted that proposed new mortgage structures, including 50-year amortization schedules or expanded assumability, are unlikely to scale because of legal and practical constraints. Additional mortgage demand from GSEs (Government-Sponsored Enterprises) and domestic banks could lower mortgage rates slightly, by about an eighth to a quarter of a point. They concluded the housing market is “well supported but range bound,” with moderate gains in rates, volumes, and prices rather than a breakout.

Source: Morgan Stanley, “Thoughts on the Market: U.S. Housing Outlook,” Podcast, December 1, 2025.

Sources

J.P. Morgan Asset Management. “Weekly Market Recap.” J.P. Morgan Asset Management, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/weekly-market-recap/

T. Rowe Price. “Global Markets Weekly Update.” T. Rowe Price Insights, https://www.troweprice.com/personal-investing/resources/insights/global-markets-weekly-update.html

BlackRock Investment Institute. “Weekly Investment Commentary: Micro Is Macro in the Mega AI Buildout.” BlackRock, 8 Dec. 2025. https://www.blackrock.com/corporate/literature/market-commentary/weekly-investment-commentary-en-us-20251208-micro-is-macro-in-mega-ai-buildout.pdf

J.P. Morgan Asset Management. “Economic Update.” J.P. Morgan Asset Management, https://am.jpmorgan.com/us/en/asset-management/adv/insights/market-insights/market-updates/economic-update/

Apollo Academy. “Significant Fiscal Boost Coming in 2026.”https://www.apolloacademy.com/significant-fiscal-boost-coming-in-2026/

Tax Foundation. “Will the Big Beautiful Bill Lead to an Economic Boom or Just Modestly Higher Growth?”https://taxfoundation.org/blog/big-beautiful-bill-impact-deficit-economy/

CNBC. “Nvidia Can Sell the More Advanced H200 AI Chip to China — But Will Beijing Want Them?”https://www.cnbc.com/2025/12/09/nvidia-can-sell-h200-ai-chip-to-china-but-will-beijing-want-them.html

The Independent. “OpenAI Rushes Out New AI Model After ‘Code Red’ Declared.”https://www.the-independent.com/tech/openai-gpt-model-code-red-gemini-3-b2879968.html

Yahoo Finance. “JPMorgan Stock Tumbles Over 4% After Company Warns on Higher Spending in 2026.”https://finance.yahoo.com/news/jpmorgan-stock-tumbles-over-4-after-company-warns-on-higher-spending-in-2026-195605298.html

Fortune. “The Fed Cut Rates But Delivered a Hawkish Message. Here’s What It Means.”https://fortune.com/2025/12/10/fed-cuts-rate-december-hawkish-rare-2026/

Newsweek. “Donald Trump Suffers Legal Blow Over ‘Day 1’ Immigration Order.”https://www.newsweek.com/donald-trump-legal-blow-day-1-immigration-ban-11186504

Yahoo News. “Trump Administration Freezes Immigration Applications for Travel-Ban Nationals — What to Know.”https://www.yahoo.com/news/articles/trump-administration-freezes-immigration-applications-200459066.html