Comments based on information available as of 5:45am CT on 12/12/2025

Growth: The Sun Will Come Out Tomorrow

The labor market has been going through a rough patch, but it’s not likely the start of something darker. Business capital spending is likely set to pick up, helped by accelerated expensing and other tax-friendly provisions that encourage investment. Households may also get a lift from more generous tax rules taking effect, adding a bit more resilience to consumer demand. And with the Fed on pause—and importantly, without any bias toward hiking—the policy backdrop is far less uncertain than it was a year ago. Put it all together, and there’s quite a bit to like about the outlook for 2026.

Inflation: As Bad As It Gets?

Inflation is the rise in prices, so “better” inflation doesn’t mean prices fall—it just means they stop rising as quickly. Goods prices are still feeling the effects of tariffs, and that pressure may linger, but it’s nowhere near as severe as many feared back in the spring. More importantly, services inflation—the part that dominates household budgets—is starting to ease. With rent inflation now slipping into outright deflation, there’s finally some meaningful relief in sight. None of this means inflation is about to collapse, but it does suggest the worst is likely behind us.

Policy: A Pause That Refreshes?

Investors were fearing a “hawkish cut,” instead it was simply a cut. A pause in January could be fine. It’s likely that the Fed will cut two more times: once in June and once in December. The Fed is trying to land its policy rate in the zone that’s high enough to keep inflation contained but low enough to prevent a meaningful rise in unemployment. It hasn’t quite found that sweet spot yet. But with this latest cut, policymakers have likely given themselves enough breathing room to pause for a few meetings and assess whether additional easing is truly needed.

Looking Ahead: Distinctions Make The Difference

Mark Twain allegedly said, “History doesn’t repeat itself, but it often rhymes.” What he didn’t say is that every rhyme ends the same way. There’s plenty of excitement around technological change today, and markets are pricing in that that excitement. Whenever tech rallies, many investors can’t help but think back to the 2000 bubble. The parallels are always easy to spot—but the distinctions matter far more. Back then, the Fed was hiking, and many of the market’s top performers were debt-heavy and barely profitable. Today, the Fed is cutting—or at least on hold—and the leaders of this market are cash-rich, profitable, and carry minimal leverage. The rhyme is there, but the verse is different enough that investors shouldn’t expect an exact repeat of the 2000 ending. It will likely be as unique as the circumstances are.