As we head into the final stretch of 2025, markets wrapped up a resilient week with modest advances, buoyed by cooling inflation signals and near-lockstep expectations for a Federal Reserve rate cut next week. The post-Thanksgiving rally from late November carried forward momentum, though volatility simmered beneath the surface due to lingering government shutdown backlogs and mixed labor data. Equities edged higher, small-caps showed pockets of strength, and the dollar continued its slide, while crypto stabilized after a choppy month. Below is a recap of the week (December 2-6), followed by an outlook for the December 9-12 trading period, with the Fed meeting taking center stage.
Week in Review: Modest Risk-On Momentum Builds
U.S. stocks closed the week on a positive note, marking a second consecutive weekly gain across major indices—the first such streak since October. Investors largely shrugged off patchy economic releases, focusing instead on dovish Fed rhetoric and tame inflation prints that reinforced bets for monetary easing. The S&P 500 notched its ninth positive session in ten, hovering just shy of its October all-time high, while tech and small-caps outperformed amid rotation from megacaps.
Key index performances (weekly):
- - Sectors Snapshot: Technology and consumer discretionary led gains, with Ulta Beauty surging 12.7% after upbeat guidance and Broadcom climbing 2.7% on AI tailwinds. Amazon dipped 1.4% mid-week on e-commerce concerns but recovered slightly. Energy lagged as oil prices softened on demand worries, while financials rotated in modestly. Netflix shares fell ~2.5% on news of its $72B acquisition of Warner Bros. Discovery's studios and streaming assets, ending a bidding war—boosting WBD +6.3% but raising integration jitters.
- - Bonds & Yields: The 10-year Treasury yield eased to 4.06% (down ~9 bps WoW), reflecting rate-cut pricing. Markets now see an 87-90% chance of a 25 bps cut to 3.50-3.75% at the Fed's December 10 meeting, up from ~30% two weeks ago, per CME FedWatch. Shorter-end volatility subsided post-month-end, with SOFR rates dipping as T-bill reinvestments kicked in.
- - Commodities: Gold held steady near $4,140 (+0.1% WoW), benefiting from USD weakness as a hedge. Oil (WTI) slipped to ~$58 (-1.3% WoW) on global demand fears and ample supply, with natural gas spiking to $5.05/MMBtu on cold weather snaps. Broader metals like silver edged up ~1%.
- - Currencies: The USD Index (DXY) fell 0.4% WoW to ~99.5, its second straight decline, as Fed doves like Christopher Waller reiterated easing support. EUR/USD rose +0.3%, while the yen gained 0.1% to 155.30 amid BOJ hike speculation.
- - Crypto: Bitcoin stabilized at ~$88,000 (+1.3% WoW), defending $87K support but capping below $90K amid broader risk-on flows. Ethereum climbed +1.9% to $2,953, with MACD showing bullish divergence. Total market cap: ~$3.2T.
Major Catalysts:
- - Economic Data: Friday's PCE inflation (Fed's preferred gauge) met expectations at +0.3% MoM, with core steady—easing stagflation fears but not erasing them. Consumer sentiment ticked up to 53.3 (vs. 52 forecast), though high prices and job worries persist. Jobless claims plunged to 191K (lowest since 2022), but Challenger layoffs rose 23.5% YoY, painting a muddled labor picture. Delayed factory orders (+0.2%, below est.) highlighted tariff drags.
- - Fed Speak: Dovish tones from officials flipped cut odds higher, though Chair Powell noted "strongly differing views" internally—hinting at potential dissents next week.
- - Corporate Highlights: Earnings from UiPath beat estimates (+14% on rev), while Victoria's Secret jumped 13% premarket on raised FY25 guidance. M&A buzz from the Netflix-WBD deal underscored streaming consolidation.
Overall, the week felt like a breather after November's Fed-fueled rally, with VIX dipping below 20 signaling complacency. Volumes were light, but small-caps' surge (Russell 2000 +0.8% after +5.5% prior week) points to broadening participation beyond Big Tech.
Outlook: Fed Focus Dominates – Cuts, Clarity, and Catalysts Ahead (Dec 9-12)
Heading into next week, the spotlight is squarely on the Fed's December 9-10 meeting—the last of 2025 and a pivotal pivot for 2026 rate paths. Markets are pricing in a near-certain 25 bps cut, but internal divisions (5 of 12 voters skeptical) could spark volatility via the dot plot, projections, and Powell's presser. A dovish surprise could propel equities toward year-end highs; hawkish pushback might trigger a pullback, especially if labor data underwhelms. Broader risks include sticky inflation (at 3%), consumer fatigue, and geopolitical flares, but seasonal tailwinds like "Santa Claus rally" odds (~70% historical win rate) offer upside.
Key Themes & Scenarios:
- - Bull Case: Confirmed cut + forward guidance for 75-100 bps easing in 2026 lifts risk assets. S&P targets 6,950; Nasdaq eyes 24,000. Small-caps and cyclicals extend rotation; crypto pushes BTC to $95K.
- - Bear Case: Dissent-heavy statement or hotter-than-expected JOLTS layoffs data crushes cut bets, rebounding DXY to 101 and yields to 4.15%. Equities dip 1-2%; VIX spikes to 22.
- - Neutral/Base: Steady cut with neutral dots—modest grind higher, but thin holiday volumes amplify swings.
Economic Calendar Highlights (Dec 9-12):
Asset Class Watch:
- - Equities: S&P 500 could test 6,900 if Fed delivers; watch tech earnings echoes and M&A flows. Rotation favors value/small-caps.
- - Bonds: Yields dip to 3.95% on cut confirmation; post-meeting selloff risk if guidance pauses easing.
- - Commodities: Gold to $4,200 on USD slip; oil volatile around $58-60 amid OPEC+ watch.
- - FX/Crypto: DXY eyes 99 support; BTC breakout above $88.5K targets $90K+ on risk-on flows.
Stay nimble—December compresses high event risk into a short window. With 2025's double-digit gains already in the bag, positioning for clarity over conviction will be key. Check back for mid-week updates as the Fed tape unfolds.
