U.S. stocks finished the week on a down note, but 2025 marked another year of double digit gains for the major indices. Volume was light and volatility was low as most traders remained on the sidelines for the holiday. As we move into the new year, the U.S. economy is still showing resilience and inflation is under control. But a steady rise in the unemployment rate looms as a sign of trouble.
Tip of the Week
As markets enter 2026 with broad gains behind them, investors should revisit the power of diversification across asset classes. Past performance does not guarantee future results, and having exposure across equities, fixed income, and alternative assets can help manage risk while participating in growth.
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Market Moves
Weekly Market Snapshot:
- S&P 500: -1.0% – U.S. stocks consolidated to close out the year, but still finish 2025 with a gain of roughly 16%.
- Nasdaq 100: -1.6% – traders may be locking in gains for recent winners, but an overall lack of trading volume doesn’t really tell us much.
- Russell 2000: -1.1% – small-caps continue to struggle as investor optimism remains focused on tech and AI stocks.
- VIX: 14.5 – volatility was muted and markets stayed calm; normal conditions are likely to return in the coming week.
- Gold: -4.8% – gold gives back pretty much all of its gains from the prior week as traders reallocate to set up the new year, but 2025 still marks one of its best years ever.
- 10-Year Treasury Yield: 4.19% – yields ticked higher, but traders are waiting for next week’s unemployment data for early 2026 trends.
Drivers:
It’s tough to draw any meaningful conclusions from what was largely a quiet week. Low volatility conditions can lift risk asset prices, but year-end can also motivate investors to lock in gains and reallocate, which may be what happened here. As we head into 2026, the labor market and inflation will be key factors to watch as the market currently expects the economy to continue growing at a healthy rate.
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Economic Highlights
A couple of the notable themes that stood out this week:
Future Earnings Growth Is Looking Strong
While we talk a lot about the tech and AI trades helping to push stock prices higher, it ultimately comes down to earnings growth. If corporate earnings are rising, chances are that stocks will eventually follow suit. Based on Goldman Sachs’ current outlook, investors might be in for more good times ahead.1
Source: Goldman Sachs.
It’s expected that S&P 500 earnings will post low double-digit growth in both 2026 and 2027 after hitting that number in 2025. There are some concerns about current valuations, but stocks could keep rising this year even with some multiple contraction if this number is hit. The composition of any U.S. stock rally, of course, could be much different going forward, but it looks like a constructive background nonetheless.
International earnings are also expected to accelerate. Given relatively cheap valuations, this could be an area for investors to consider, especially considering how overseas stocks finally beat the S&P 500 in 2025.
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Home Prices Fall For The 4th Straight Month
Overall, the housing market continues to show signs of slowing, but individual performance at the regional level varies widely. The Case Shiller Home Price Index fell by 0.3% month-over-month in October, the 4th consecutive month of price declines, pushing the annualized growth rate down to a scant 1.3%.2
Source: Trading Economics
Gains are strongest in Midwest and Northeast markets (Chicago and New York are both up at least 5%), while southern regions, including Florida, Texas, and Arizona, are seeing prices decline. With mortgage rates remaining elevated, affordability still an issue, and the jobs market showing signs of weakness, it’s not surprising to see many potential homebuyers be unwilling to bid up home prices any longer.
Jobless Claims Continue To Fall
Weekly jobless claim numbers are starting to fall, although some of that could be due to holiday and seasonality factors. Last week’s reading was nearly the lowest in almost a year, suggesting that the labor market situation may not be quite as bad as feared.3 It’s possible we see a rebound in the coming weeks once business returns back to normal, but strength in the jobs market would be a big plus in 2026.
The Week Ahead
A few themes to watch next week:
In Summary
2025 wrapped up on a down note, but there’s still reason to be optimistic about 2026. The jobs market will be a key driver and any improvements in this week’s data could boost equities to kick off the new year. The backdrop of positive expected earnings growth and a resilient U.S. economy should be supportive of risk asset prices in the near-term.
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