Global Policy Divergence, Rising Oil Risks, and Softer Inflation Amid Noisy Labor Data

Weekly Market Commentary | Week of Dec 22^nd, 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

• U.S. labor data looked weaker but was misleading, with headline job losses driven by government employment declines, while inflation came in softer than expected.

• Global central bank divergence sharpened, led by the Bank of Japan’s rate hike to the highest level in three decades and more cautious signals from Europe.

• Geopolitical risk rose as the U.S. tightened enforcement of Venezuelan oil sanctions, adding uncertainty to energy markets.

Economic Recap

Investors digested a mixed set of economic signals last week, with U.S. data pointing to some cooling in labor market conditions while equity markets remained near record levels. Employment data leaned weaker, as the economy lost a net 41,000 jobs across October and November, entirely driven by a 162,000 decline in federal government employment tied to deferred resignations, while private payrolls rose a solid 121,000, concentrated in health care and social assistance. The unemployment rate increased to 4.6%. Inflation data offered some relief, with November CPI coming in softer than expected at 2.7% year over year for headline inflation and 2.6% for core, though data collection issues led investors to treat the report cautiously. Globally, central bank divergence was in focus. In Japan, the Bank of Japan raised its benchmark rate by 25 basis points to 0.75%, the highest level in three decades, underscoring its gradual policy normalization as inflation remains firm. Japanese equities declined on valuation concerns, while the yen weakened as markets questioned how quickly further tightening could proceed. In Europe, policymakers signaled a more cautious growth outlook, reinforcing expectations that monetary easing will arrive sooner there than in the U.S., even as global bond yields rose and challenged the traditional role of long-duration government bonds as portfolio stabilizers.

Market Recap

Source: JPMorgan Asset Management, “Weekly Market Recap” (December 22^nd, 2025). (Chart © JPMorgan Asset Management. Chart used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

Fixed income markets saw U.S. Treasuries generate positive returns as yields declined following the Federal Reserve’s prior rate cut, outperforming both municipal bonds and high yield credit. Municipal markets remained broadly stable but lagged Treasuries amid subdued secondary activity, while high yield sentiment firmed later in the week despite mixed employment data and early equity weakness, supported by the CPI release. Equity markets were mixed, reflecting continued dispersion beneath headline indexes. The S&P 500 edged up 0.13% on the week, while the Nasdaq gained 0.49%, supported by growth stocks, with the Russell 1000 Growth rising 0.55%. In contrast, value and smaller-cap stocks lagged, as the Russell 2000 fell 0.83% and the Dow Jones Industrial Average declined 0.64%. International equities underperformed, with MSCI EAFE up just 0.20% and MSCI Emerging Markets down 1.51%. Trading volumes were below average, reflecting a market driven more by issuer-specific developments than by broad macro repositioning, even as high yield sentiment improved following the CPI release.

Market Themes

Escalation in U.S. Enforcement of Venezuelan Oil Sanctions

U.S. enforcement actions against Venezuelan oil shipments intensified in recent days as the Trump administration moved to actively interdict and seize tankers linked to sanctioned crude exports. The United States has pursued multiple vessels in international waters, describing them as part of a “dark fleet” used to evade sanctions through false flags and opaque ownership structures. President Trump last week ordered a “complete” blockade of sanctioned tankers entering or leaving Venezuela, significantly tightening enforcement rather than introducing new sanctions. Venezuela condemned the seizures as violations of international law and said it would raise the issue at the United Nations, while China criticized the actions as arbitrary and unlawful. Despite the escalation, analysts expect the near-term impact on global oil prices to be limited, as global supply currently exceeds demand and most Venezuelan crude flows to China, where inventories remain elevated.

Healthcare Policy Uncertainty Drives Market Positioning

Healthcare emerged as a key political and market risk as expiring Affordable Care Act subsidies fueled volatility across the sector. Hedge funds became net sellers of U.S. healthcare stocks for the first time in fourteen weeks, with short positions outweighing longs by more than eight to one, reflecting concern over rising costs and legislative uncertainty. At the same time, reports that the Trump administration may pursue a two-year subsidy extension triggered sharp rallies in health insurer stocks, highlighting the sensitivity of valuations to policy outcomes. With Congress leaving town without a deal and millions of Americans facing higher premiums starting in 2026, healthcare affordability is set to remain a dominant political issue into the new year, with markets bracing for continued headline-driven swings.

Chart of the Week

Source: Apollo Academy, “Public Markets Are More Exposed to AI Than Ever Before,” 2025. (Chart © Apollo Academy. Used under fair use for educational commentary by The Quinnipiac Global Economics Research Team.)

The chart illustrates how a traditional 60/40 portfolio constructed in 2019 would have effectively morphed into an 80/20 portfolio by 2025, driven by the outsized gains of the “Magnificent Seven” technology stocks. A similar dynamic is unfolding in public credit markets, as hyperscalers issue more debt and increase the weight of artificial intelligence exposure within investment-grade bond indexes. The key takeaway is that investors in both public equities and public credit are now more exposed to AI-related risk and return drivers than ever before, often without explicitly choosing that exposure.

Market Outlook

Looking ahead to the Christmas holiday week, markets are likely to remain sensitive to thin liquidity, delayed economic data, and lingering uncertainty around the true state of labor and inflation trends. With several key U.S. releases still affected by prior data disruptions, investors are likely to place greater weight on incremental signals rather than headline surprises. Global central bank divergence remains in focus following recent moves abroad, particularly in Japan, while rising long-term bond yields outside the U.S. continue to challenge the role of duration as a reliable diversifier. With risk assets still near recent highs and positioning increasingly concentrated, markets may be prone to outsized moves on limited news flow. In this environment, reduced liquidity around the holidays elevates the importance of caution and flexibility, as price action may reflect positioning and technicals more than fundamental shifts.

Heard It on a Pod

The Markets – We Like Bonds

On the December 19, 2025 episode of The Markets, Lindsay Rosner, Head of Multisector Investing at Goldman Sachs Asset Management, discussed the latest U.S. jobs data and cautioned against overreacting to headline figures distorted by government-related effects. She noted that the establishment survey showed payrolls rising by 64,000 in November following a reported loss of 105,000 jobs in October, but emphasized that the prior decline was driven largely by deferred government resignations rather than broad-based weakness. Rosner highlighted that private-sector employment trends remain more constructive, reducing concern about underlying economic momentum. She also stressed the importance of looking through short-term noise in the data, particularly in an environment where policy disruptions and reporting issues can obscure the true signal, reinforcing the case for a measured interpretation of labor market conditions.

Source: Goldman Sachs Asset Management, The Markets: “We Like Bonds”, Podcast, December 19, 2025.

Calendar Events

Economic Data:

• Dec. 23 (Tues): GDP (Q3, delayed); Industrial production (Oct. and Nov.); Consumer confidence (Dec.)

Sources

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

CNN. “U.S. Pursuing Tanker Near Venezuela Amid Sanctions Crackdown.” December 21, 2025. https://www.cnn.com/2025/12/21/politics/us-pursuing-tanker-near-venezuela

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/

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/

NBC News. “Congress Leaves Town Until 2026 With No Health Care Deal, Forcing Premium Hikes.” December 2025. https://www.nbcnews.com/politics/congress/congress-leaves-town-2026-no-health-care-deal-forcing-premium-hikes-rcna249817

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

The Washington Post. “Trump Says Venezuela Stole U.S. Oil. Here’s the History.” December 20, 2025. https://www.washingtonpost.com/world/2025/12/20/venezuela-oil-nationalization-expropriation/

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Yahoo Finance. “Trump to Summon Health Insurers as ACA Subsidy Debate Intensifies.” December 2025. https://finance.yahoo.com/news/trump-summon-health-insurers-ask-212010903.html