December rebound builds confidence
Equity markets rebounded in December following a flat November, finishing the year strong and shrugging off fears of an AI-driven technology bubble.

Data represented through Dec. 24

The CBOE Volatility Index (VIX) closed in November at 13.4, well below the April 7 intraday high of 60.1 and comfortably under the 20 level generally considered stable. While volatility may increase modestly, it is expected to stay within an acceptable range. Markets can continue to perform well even amid periods of greater unpredictability.

Fixed income markets also posted solid gains after a slow start to the year. The Bloomberg U.S. Aggregate Bond Index was up 7.3% year-to-date, well above last year’s 1.3% return.

Economic insights
In the November CPI inflation report from The Bureau of Labor Statistics (BLS), CPI rose 2.7% year over year — an encouraging number for markets. Month-over-month data for October and November were not collected due to the government shutdown. September data showed CPI increase to 3.0%, up 0.1% from the previous month.

BLS employment data indicated 64,000 new jobs created in November, compared to 119,000 in September and 22,000 in August. The unemployment rate increased from 4.4% to 4.6%, but these results were generally in line with market expectations.

The U.S. Bureau of Economic Analysis reported third-quarter GDP growth of 4.3%, up from 3.8% in the second quarter. We see this as evidence of a steady economy driving equity returns.

On Dec. 10, the Federal Reserve cut interest rates by 25 basis points, as expected. The current rates stand at 3.5%–3.75%. Markets anticipate an additional two or three cuts into 2026, depending on inflation trends and labor market strength.

Earnings update
Concerns about valuation eased in the second part of December. Third-quarter earnings were generally strong, with 83% of S&P 500 companies reporting positive earnings surprises. Year-over-year earnings growth reached 13.4%, marking the fourth consecutive quarter of double-digit growth.

The next earnings report is expected to reflect more moderate growth, with year-over-year gains of approximately 8.3%. Estimates for 2026 also fall within the 8% range.

Looking ahead
We believe equity markets, driven by earnings growth, can continue to perform into the new year. While volatility picked up in October and November, company fundamentals remain strong. There may be increased pressure on inflation, which would likely dampen future rate cuts by the Fed.

Investment opportunities persist across a wide spectrum, including private equity and credit, venture growth, technology, and dividend-oriented investments for risk-averse investors. The current market valuation stands at 21.8 times forward earnings, down slightly from the start of the year.

The resilience of the U.S. economy, the success of leading U.S. companies, and the strength of last year’s earnings growth all support a positive long-term outlook.