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Market News
Market analysis
December 8, 2025
Equities edged higher last week along with U.S. interest rates ahead of this week’s much-anticipated Federal Reserve meeting. Constructive consumer spending and moderate inflation support equity market valuations.
Number of the week:
12.9%
The increase in earnings for S&P 500 companies in the third quarter compared to a year earlier, beating expectations of 7.9%.
Term of the week:
Michigan Consumer Sentiment Index
A monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. The survey is based on telephone interviews that gather information on consumer expectations for the economy.
Quote of the week:
We are increasing our S&P 500 year-end 2026 price target from 7,200 to 7,625. This new target reflects a multiple of 25 times slightly below consensus projected 2026 earnings of $305. Benign inflation, declining interest rates and rising earnings continue to support valuations.
― Terry Sandven, Portfolio Manager, Chief Equity Strategist, U.S. Bank
U.S. Bank Asset Management Group
Kaush Amin
Head of Private Market Investing
Chad Burlingame
Head of Impact Investments
Thomas Hainlin
National Investment Strategist
Robert Haworth
Senior Investment Strategy Director
William Merz
Head of Capital Markets Research
Terry Sandven
Chief Equity Strategist
Global economy
Quick take: Consumer income growth continues to support spending despite overall employment growth stalling in recent months. Consumer sentiment improved slightly from weak levels in preliminary December surveys. The Core Personal Consumption Expenditure (PCE) Price Index, a measure of inflation, decelerated slightly in September, and consumer inflation expectations fell.
- Personal incomes rose 5% year-over-year in September, fueling a matching 5% increase in consumer spending. While the labor market continues to slow, its impact varies across industries, job types and company sizes. The Bureau of Economic Analysis reports consumer incomes and spending remain healthy. In November, Advanced Data Processing found private employment contracted as small businesses reduced payrolls, but medium and large businesses continued to add jobs. Initial jobless claims stayed low, indicating limited layoffs. Although layoff announcements increased compared to last year, they dropped 50% from October, according to Challenger, Gray & Christmas. This week, the Bureau of Labor Statistics will release data on October job openings, layoffs and quits, offering more insight into the balance between slow hiring and contained job losses.
- Consumer sentiment shows signs of improvement, and inflation concerns have eased. The University of Michigan Consumer Sentiment Index’s preliminary December report revealed a slight uptick in consumer sentiment, though it remains near historic lows. Consumers now expect inflation to run at 4.1% over the next year, down from November’s reading. While political views and low response rates can influence sentiment surveys, these modest improvements and stabilizing inflation expectations are encouraging and may shape consumer behavior.
- PCE inflation edged up 0.1% in September, reaching 2.8% year-over-year. The report highlighted tariff impacts, with goods prices climbing 1.4% year-over-year — contrasting with negative goods price inflation in March before U.S. tariffs took effect. Shelter inflation, however, slowed from 4.3% to 3.7% since March, helping to contain overall PCE inflation.
- Service sector growth continues to drive expanding global economic activity. Composite S&P Global Purchasing Manager Index (PMI) readings indicate growth across major economies, including the U.S., eurozone, United Kingdom, Japan and China. Service activity continues to outpace manufacturing. The Institute of Supply Management (ISM) reports lower manufacturing activity than S&P Global, suggesting small businesses may lag larger firms. ISM’s smaller business focus also reveals ongoing price pressures and weakening employment conditions.
Equity markets
Quick take: Equity markets showed mixed results in November, with strong year-to-date gains and upbeat earnings. Analysts remain optimistic for 2025–2026, but elevated valuations and shifting consumer trends warrant close attention. Stable inflation, falling interest rates and rising earnings trends continue to support valuations and drive risk-on positioning.
- International equities continue to power global equity markets gains in 2025. The MSCI EAFE and MSCI Emerging Market indices have surged 29.2% and 32.2%, respectively, outpacing the S&P 500’s 18.2% gain and the Russell 2000’s 14.5% climb. All 11 S&P 500 sectors are in positive territory, reflecting broad economic strength. Communication Services (36%), Information Technology (26.1%), Industrials (18.5%) and Utilities (16.8%) are setting the pace, while Consumer Discretionary, Consumer Staples, Materials and REITs trail with returns under 10%.
- Early holiday shopping data signals healthy consumer activity. Airlines report steady demand, and credit card companies highlight robust spending. However, we’ll need to wait until year-end for a complete picture of in-store and online sales.
- Third quarter corporate earnings beat expectations. Nearly all S&P 500 companies have reported third-quarter results, with sales rising 8.2% — well above the 6.1% forecast. Earnings jumped 12.9%, far exceeding the 7.9% estimate. Late reporters this week include Adobe, Broadcom, Oracle, Costco and Lululemon.
- Analysts remain optimistic. Forecasts for 2025 and 2026 S&P 500 earnings keep climbing. Analysts project annual growth rates of 10.8% for 2025 and 13.6% for 2026. The index currently trades at 25.3 times 2025 estimates, well above the five-year average of 19.8 times. Elevated valuations may persist, given the index’s tech-heavy composition.
- Growth prospects extend beyond technology. Technology firms specializing in data, storage, processing, software and security stand to benefit as artificial intelligence (AI) infrastructure grows. Communication Services also looks poised to gain from AI adoption. Utilities enjoy new growth prospects as electricity demand rises with more data centers coming online. Banks may benefit from deregulation, a priority for the Trump administration. In healthcare, AI is improving patient outcomes through better diagnosis, treatment planning, drug discovery, imaging analysis and patient management.
- We are increasing our S&P 500 year-end 2026 price target from 7,200 to 7,625. This new target reflects a multiple of 25 times slightly below consensus projected 2026 earnings of $305. Benign inflation, declining interest rates and rising earnings continue to support valuations.
Bond markets
Quick take: Investors expect the Federal Reserve to cut rates by 0.25% this week, despite differing Fed officials’ viewpoints over the last month.
- Investors widely expect the Fed to announce a rate cut after its meeting on Wednesday. Since late 2024, the Fed has reduced its policy rate by 1.5%, setting the current target range at 3.75%-4.00%. Fed officials have shared differing views on the forward path. Some, including Boston Fed President Susan Collins and Kansas City Fed President Jeff Schmid, have voiced inflation concerns, which would indicate steady rates through year-end. However, as labor market data softened, New York Fed President John Williams and Governor Christopher Waller advocated for a rate cut. The Fed will also release new economic and interest rate projections, offering investors valuable insight into future policy.
- President Donald Trump said he plans to announce his pick for the next Fed Chair in early 2026. Current Chair Jerome Powell’s term ends in May. Many investors speculate that Trump may select Kevin Hassett, Director of the White House National Economic Council. While the Fed operates by majority vote, the Fed Chair traditionally has significant influence over the direction of monetary policy.
- Japanese 10-year government bond yields reached their highest level since 2007. Yields rose after Bank of Japan (BOJ) Governor Kazuo Ueda indicated uncertainty about how much the BOJ needs to raise rates to achieve a neutral policy stance. Markets currently expect one rate hike at its next meeting on December 19 and another in 2026.
- Structured credit continues to offer investors opportunities for higher yields and diversification beyond traditional fixed income. High-quality, non-government-backed mortgages yield 1.4% to 2.0% above Treasuries, depending on credit rating, compared to 0.8% for investment-grade corporates. Substantial home equity gains in recent years highlight mortgage securities’ strong fundamentals. Many homeowners locked in low rates before 2022’s increases, which encourages them to stay current on payments.
- Two-year U.S. Treasury yields rose seven basis points to 3.56% last week, while 10-year yields rose 12 basis points, closing at 4.14%. Higher yields across Treasury maturities led to a 0.5% decline in the investment-grade bonds. However, tightening spreads, or the additional yield investors demand for taking credit risk, helped high yield bonds overcome higher Treasury yields and deliver a modest 0.1% weekly return.
Real assets
Quick take: Real estate investment trust (REIT) and global infrastructure prices fell last week while broad commodity exposures rose with gains across energy commodities, precious metals, industrial metals, and agricultural commodities.
- Last week, rising Treasury yields weighed on REIT returns, resulting in a 1.6% decline across most property types. Healthcare REITs faced additional challenges after a major player cut its dividend to strengthen its balance sheet and preserve cash. Despite this setback, healthcare REITs have delivered robust performance this year, gaining more than 40%. Broad REIT exposures currently generate net operating income near their 5% long-term average, but valuations appear somewhat expensive compared to income opportunities in bonds. If the Federal Reserve implements further rate cuts, REIT valuations could become more attractive, enhancing their appeal for income-focused investors.
- Rising bond yields drove global infrastructure prices down by 1.7% last week. U.S. utility companies, which play a central role in global infrastructure, led sector losses with a 4.5% drop. Despite this setback, utility stocks have achieved strong gains throughout the year. Investors anticipate that datacenter investments will increase power demand, fueling optimism about artificial intelligence and supporting utility stock performance. In contrast, other areas of global infrastructure — such as North American energy infrastructure and U.S. industrial companies — posted positive returns for the week.
- All major commodity segments advanced last week, lifting broad indexes by 1.6%. Oil prices climbed as peace negotiations between Russia and Ukraine stalled. Natural gas prices rose in response to colder-than-normal forecasts for the coming weeks. Silver prices increased by 3.3%, serving as both a hedge against geopolitical uncertainty and a key industrial material. Copper prices jumped 3.6%, reflecting ongoing tariff uncertainty and benefiting from rising demand for power infrastructure and datacenters supporting artificial intelligence.
This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.
Based on our strategic approach to creating diversified portfolios, guidelines are in place concerning the construction of portfolios and how investments should be allocated to specific asset classes based on client goals, objectives and tolerance for risk. Not all recommended asset classes will be suitable for every portfolio. Diversification and asset allocation do not guarantee returns or protect against losses.
Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general. The NASDAQ Composite Index is a market-capitalization weighted average of roughly 5,000 stocks that are electronically traded in the NASDAQ market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index and is representative of the U.S. small capitalization securities market. The MSCI EAFE Index includes approximately 1,000 companies representing the stock markets of 21 countries in Europe, Australasia and the Far East (EAFE). The MSCI Emerging Markets Index is designed to measure equity market performance in global emerging markets. The S&P Global Purchasing Managers' Index data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies. The Consumer Price Index is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. It is one of the most frequently used statistics for identifying periods of inflation or deflation. The Personal Consumption Expenditures (PCE) Price Index is a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services. It is known for capturing inflation (or deflation) across a wide range of consumer expenses and reflecting changes in consumer behavior. The Institute of Supply Management Manufacturing Index, also called the Purchasing Manager's Index, measures manufacturing activity based on a monthly survey, conducted by the Institute for Supply Management, of purchasing managers at more than 300 manufacturing firms. The Michigan Consumer Sentiment Index is a monthly survey of consumer confidence levels in the United States conducted by the University of Michigan. The survey is based on telephone interviews that gather information on consumer expectations for the economy. The Conference Board is a nonprofit research organization that distributes vital economic information to its peer-to-peer business members.
Equity securities are subject to stock market fluctuations that occur in response to economic and business developments. International investing involves special risks, including foreign taxation, currency risks, risks associated with possible differences in financial standards and other risks associated with future political and economic developments. Investing in emerging markets may involve greater risks than investing in more developed countries. In addition, concentration of investments in a single region may result in greater volatility. Investing in fixed income securities is subject to various risks, including changes in interest rates, credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Investment in debt securities typically decrease in value when interest rates rise. This risk is usually greater for longer-term debt securities. Investments in lower-rated and non-rated securities present a greater risk of loss to principal and interest than higher-rated securities. Investments in high yield bonds offer the potential for high current income and attractive total return but involve certain risks. Changes in economic conditions or other circumstances may adversely affect a bond issuer's ability to make principal and interest payments. The municipal bond market is volatile and can be significantly affected by adverse tax, legislative or political changes and the financial condition of the issues of municipal securities. Interest rate increases can cause the price of a bond to decrease. Income on municipal bonds is free from federal taxes but may be subject to the federal alternative minimum tax (AMT), state and local taxes. There are special risks associated with investments in real assets such as commodities and real estate securities. For commodities, risks may include market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investments in real estate securities can be subject to fluctuations in the value of the underlying properties, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties (such as rental defaults).
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