China’s Slowdown, Rising Energy Pressures, and Europe’s Uneven Outlook

Weekly Market Commentary | Week of Dec 15^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

• Global markets reflected increasing divergence beneath the surface, with U.S. equities rotating away from large-cap growth toward small caps, value, and international markets as investors reassessed rate sensitivity and earnings durability.

• Economic data pointed to cooling momentum in several major economies, with softer U.S. labor indicators, renewed weakness in China’s consumption and property sectors, and uneven growth across Europe and Japan shaping expectations for 2026.

• Market narratives increasingly focused on structural themes, including the sustainability of AI-driven investment, rising electricity demand as a potential inflation channel, and renewed attention on the IPO pipeline following reports that SpaceX is exploring a public listing.

Economic Recap

Following last week’s discussion of the Federal Reserve’s third rate cut and its cautious messaging, incoming data and global developments highlighted widening differences across regions. In the U.S., labor indicators showed early signs of cooling, with jobless claims jumping to 236,000, the highest since early September, while job openings edged up to a five-month high even as layoffs rose, hiring slowed, and the quits rate fell to its lowest level since 2020. In Europe, policymakers leaned toward stability, with ECB officials expressing comfort with holding borrowing costs steady for an extended period and a Reuters poll showing most economists expect no change through the end of 2026, even as the U.K. economy contracted 0.1% in October for a second straight month and housing demand softened. In Asia, Japan moved closer to a December rate hike despite weaker growth data, as final third-quarter GDP was revised down to a 2.3% annualized contraction driven by falling capital investment. China’s data continued to reflect soft domestic demand, with consumer inflation remaining subdued, producer prices falling for the 38th consecutive month, and the property sector weighing on confidence. Among emerging markets, Brazil stood out for its policy restraint, with the central bank holding the Selic rate at 15.0% and emphasizing that inflation remains above target and that a prolonged period of tight policy may be necessary despite moderating growth and a resilient labor market.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (December 15^th, 2025). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Equity performance was mixed for the week, marked by a clear rotation away from growth and technology toward smaller-cap and value-oriented segments. The S&P 500 declined 0.61%, while the Nasdaq fell 1.61% and the Russell 1000 Growth Index dropped 1.55%, reflecting weakness in large-cap growth stocks. In contrast, the Dow Jones Industrial Average rose 1.10%, supported by more cyclical and defensive components, and the Russell 2000 gained 1.21%, outperforming large caps. Value continued to hold up better than growth, with the Russell 1000 Value Index advancing 0.62%. International equities also finished higher, with the MSCI EAFE Index up 0.85% and the MSCI Emerging Markets Index gaining 0.44%, extending the recent trend of broader participation outside U.S. mega-cap technology.

Market Themes

China’s Economic Slowdown Deepens as Consumption Weakens

China’s economy showed clearer signs of strain in November, with retail sales posting their weakest year-on-year growth since 2022 and fixed asset investment contracting more sharply, pointing to broad-based weakness across both consumption and investment. Categories that had previously benefited from policy incentives rolled over, as household appliance sales fell 19.4% year over year once upgrade programs faded, petrol sales declined 8% amid weaker fuel demand, and auto sales dropped 8.3%, reflecting softer consumer spending and the ongoing shift toward electric vehicles. These trends reinforced concerns that efforts to pivot toward household-led growth are gaining little traction, despite policymakers emphasizing income support and targeted consumption measures for 2026. The property sector remained a central drag, with home prices across 70 major cities continuing to fall and used-home prices down more than 20% from their peak, weighing directly on household wealth and confidence. Industrial production stood out as a relative bright spot, rising 4.8% year over year on strength in autos, industrial robots, and semiconductors, though analysts warned that rising trade tensions and tariff risks could threaten this remaining source of support in 2026.

SpaceX Puts the IPO Market Back on Investors’ Radar

Signs of renewed confidence in capital markets emerged as reports indicated that Elon Musk’s SpaceX is hearing pitches from investment banks ahead of a potential IPO. Bloomberg previously reported the company is targeting a mid-to-late 2026 listing that could raise $30 billion and value SpaceX at roughly $1.5 trillion, which would exceed Saudi Aramco’s record-setting 2019 debut. SpaceX is also reportedly repurchasing insider shares at valuations near $800 billion, underscoring strong private-market demand. The renewed IPO discussion comes as activity in public listings has begun to recover after several years of higher interest rates, with other large private firms such as OpenAI, Anthropic, Databricks, ByteDance, and Stripe also reportedly exploring offerings next year. The SpaceX narrative has been tied to broader AI infrastructure constraints, including discussions around electricity supply and the possibility of orbital data centers using Starlink satellites to support future AI workloads.

Chart of the Week

Source: J.P. Morgan Asset Management, “Weekly Market Recap,” 2025. (Chart © J.P. Morgan Asset Management. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Although AI data centers remain a small share of the economy, the build-out has become a meaningful driver of growth, and a potential new channel for inflation pressure through electricity costs. Over the past decade, electricity inflation tracked CPI, but over the last five years it has accelerated ahead, reflecting rising demand from broader electrification and increasingly power-hungry AI infrastructure, where a single AI search can consume around 10 times more energy than a basic web search. After electricity demand grew about 0.5% annually over the two decades through 2020, conservative estimates project growth at more than three times that pace this decade, while supply expansion, even with an “energy emergency” and potential additions of fossil fuels and nuclear, takes time. The risk is that electricity could become a sticky contributor to inflation via regulated pass-throughs, similar to how auto insurance became a persistent inflation source in 2023–24, making upcoming inflation prints an important place to watch for knock-on effects from the AI infrastructure cycle.

Market Outlook

With the Fed already delivering the year’s final rate cut and emphasizing a more conditional approach, the market’s next test is whether incoming delayed data validate rising concern about labor market downside risks or instead prove too noisy to interpret cleanly after the shutdown disruptions. Equity leadership continues to look selective, with rate-sensitive segments benefiting when policy is perceived as less hawkish than feared, while technology faces a higher bar as investors scrutinize AI-related capital expenditure plans and demand clearer evidence of payoff, a dynamic highlighted by Oracle’s revenue miss and capex guidance. In fixed income, the split between easing short-end yields and firmer long-end yields keeps attention on term premium and fiscal sensitivity, even as corporate credit has remained supported by strong new-issue demand and generally oversubscribed deals. Globally, policy divergence remains a key macro driver, with Europe debating whether the next ECB move is up or simply on hold, Japan pricing an imminent BoJ hike, and Brazil reinforcing its commitment to a prolonged restrictive stance, a reminder that inflation risk and growth moderation are being managed very differently across regions as 2026 approaches.

Heard It on a Pod

Thoughts on the Market – Europe’s Equity Outlook for 2026

In a recent episode of Morgan Stanley’s Thoughts on the Market, Paul Walsh and Marina Zavolock discussed the outlook for European equities heading into 2026, characterizing 2025 as a “year of two halves” marked by early strength driven by Germany’s fiscal pivot and diversification flows away from U.S. equities, followed by weaker execution and deteriorating earnings momentum in the second half. Zavolock noted that consensus earnings expectations for Europe remain too high, with her team forecasting roughly 3.6% growth versus nearly 13% expected by the market, reflecting persistent headwinds from structural China competition and Europe’s exposure to slower-growing, old-economy sectors such as autos, chemicals, and luxury goods. Looking ahead, she argued that Europe is unlikely to decline meaningfully if U.S. equities continue to rise, but expects upside to come primarily through multiple expansion rather than earnings growth, given Europe’s roughly 26% valuation discount to the U.S. Zavolock highlighted banks as a key area of strength due to positive earnings revisions, yield-curve exposure, and attractive valuations, alongside defense and utilities, the latter benefiting from rising power demand linked to AI infrastructure. She added that a more durable upside case for Europe could emerge if AI adoption begins to deliver measurable returns on investment, potentially broadening performance beyond a narrow set of sectors in the second half of 2026.

Source: Morgan Stanley, “Thoughts on the Market,” Podcast, December 9, 2025.

Calendar Events

Economic Data:

• Dec. 15 (Mon): Empire State manufacturing survey (Dec); Home builder confidence index (Dec)

• Dec. 16 (Tues): U.S. employment report (Nov, delayed); U.S. unemployment rate (Nov); U.S. hourly wages (Nov); Retail sales (Oct, delayed)

• Dec. 18 (Thurs): Consumer price index (Nov); Core CPI (Nov)

• Dec. 19 (Fri): Existing home sales (Nov); Consumer sentiment (final, Dec)

Major Corporate Earnings:

• Dec. 18 (Thurs): NIKE, Inc. (NKE) – Q2 2026 Earnings Announcement; FedEx Corporation (FDX) – Q2 2026 Earnings Announcement

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: Diversification Mirage in Plain Sight.” BlackRock, December 15, 2025.https://www.blackrock.com/corporate/literature/market-commentary/weekly-investment-commentary-en-us-20251215-diversification-mirage-in-plain-sight.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/

Cheng, Evelyn. “China Economy Loses Momentum Amid Spending and Investment Slump.” Yahoo Finance. https://finance.yahoo.com/news/china-economy-loses-momentum-amid-145735297.html

Frankenfield, Jake. “Elon Musk’s SpaceX Could Be Preparing for a Huge IPO. Here’s What to Know.” Investopedia. https://www.investopedia.com/elon-musk-s-spacex-could-be-preparing-for-a-huge-ipo-here-s-what-to-know-11869195