This week, markets were choppy as policy headlines drove shifts in risk sentiment. Tariff-related developments sparked early-week volatility, though conditions stabilized as concerns eased. Major equity indexes like the S&P 500 and Nasdaq finished the week little changed, but leadership continued to rotate beneath the surface. Small-cap, value, and equal-weight indexes outperformed, while technology stocks and the growth factor weighed on market-cap-weighted benchmarks. In fixed income, Treasury yields rose across the curve, driving bond prices lower. Corporate credit spreads remained extremely tight by historical standards, and high yield continued to outperform investment grade. Commodities were a strength, with gold rallying to new highs amid policy uncertainty.

This week, the markets were mixed, with last week’s rotation carrying over. The S&P 500 and Nasdaq posted modest gains, while small-cap, value, and equal-weight benchmarks outperformed, highlighting the ongoing shift in market leadership. Treasury yields fluctuated throughout the week, responding to a combination of falling unemployment, easing inflation, and solid consumer spending. Shorter-maturity Treasury yields rose as expectations for a near-term rate cut diminished, while longer-maturity yields declined. Commodities rallied, led by a sharp rise in oil and gains in gold and copper, and bitcoin rose to the highest level since mid-November.

The past few years have tested the role of bonds and fixed income in portfolios. Today, the combination of lower interest rate volatility and higher starting yields points toward a more familiar risk and return profile. Bonds could still experience volatility if inflation or policy expectations shift again, but they’re behaving more like an asset class that can provide a blend of diversification and income

This week, the markets started 2026 on a positive note, with major equity indices extending their 2025 gains as leadership shifted to smaller companies and cyclical sectors. Economic data reinforced the picture of a two-speed economy, with divergent activity across goods and services alongside softer labor conditions. The dominant market narrative centers on a soft landing, where the economy slows but avoids a recession, and the growth potential of the AI industry. Looking ahead, the main questions are whether stock market leadership will continue to broaden and how much further the Fed will cut interest rates.

Markets navigated a complex environment in Q4. The quarter began with a 43-day government shutdown, which delayed key economic data releases. The lack of timely information made it difficult to assess the economy’s strength and contributed to volatility as the market reacted to incomplete data. The Fed cut rates by 0.50% but signaled a pause, suggesting it could cut less than the market expects in 2026. Against this backdrop, the S&P 500, Nasdaq, and small-cap stocks each set new highs. In this post, we recap the defining themes and events of Q4, review performance across key markets, and look ahead to 2026.

This week, markets ended the week in a more measured and selective mood as investors digested signs of a cooling economy. Equity markets were choppy, with weakness concentrated in technology and AIrelated stocks rather than broad weakness. The S&P 500 fell nearly 2%, while the Nasdaq and Russell 2000 declined by nearly 3%. Bonds ended the week modestly higher as Treasury yields drifted lower, though longer-maturity bonds underperformed. The VIX market volatility index rose as technology stocks weighed on the broad index, and oil prices declined nearly -3%.

This week, markets leaned risk-on as the Fed delivered its third consecutive rate cut and investors doubled down on the soft-landing narrative. Stocks wavered early but rallied after Wednesday’s Fed decision, with the S&P 500 and Dow moving back toward all-time highs.  The Nasdaq and large-cap growth stocks finished the week mostly unchanged, and defensive sectors lagged. In the credit market, bonds ended the week with modest losses as Treasury yields edged higher amid expectations that the Fed will pause its rate-cutting cycle. Oil held near a four-year low, reinforcing the disinflationary tailwind, while gold hovered near record levels and Bitcoin remained volatile.

The S&P 500 has delivered strong returns the past two years, setting 57 all-time highs in 2024 and adding more than 35 in 2025. Large-cap stocks have benefited from a combination of AI enthusiasm, resilient earnings, and strong economic growth. However, one corner of the market has been noticeably absent: small-cap stocks. While the S&P 500 climbed to new highs, this month’s chart shows the Russell 2000, an index of small-cap stocks, remained stuck below its November 2021 peak. The four-year drought ended this fall when small caps broke through to new highs, driven by expectations for additional Federal Reserve rate cuts.

The stock market was volatile in November as the Federal Reserve managed investor expectations for a December rate cut. The volatility started after the Fed’s late-October meeting, when Chair Powell said a December rate cut was “not a foregone conclusion.” Sentiment then shifted again late in the month as comments from influential Fed members, rising unemployment, and favorable inflation data pushed the odds of a December cut back above 80%.

This week, the equity market staged a broad rebound, recovering a portion of this month’s losses. The surge followed last Friday’s Fed commentary, which reopened the door to a December rate cut. Major equity indices rallied sharply, with gains spread across sectors and factors. Small-cap stocks were the standout performers, signaling a rotation into interest-rate-sensitive stocks that stand to benefit most from a December rate cut. The VIX market volatility index fell to a 1-month low after its recent spike, reflecting renewed confidence in the Fed’s pivot. The shift in the policy outlook drove Treasury yields lower across the yield curve, with the short end seeing the steepest decline. Gold traded higher, while oil continued to trade lower.

This week, markets were volatile amid AI valuation concerns and Fed policy uncertainty, which pressured equities. Stocks traded lower for four straight sessions, led by weakness in technology and AI-related companies. Bitcoin continued its slide from October's peak, and market volatility spiked. The market staged a late-week rebound sparked by stronger-than-expected labor market data and Nvidia's strong Q3 earnings, but the bounce was short-lived. This week’s volatility highlights the market’s increased sensitivity to Fed policy and AI headlines, driven by the outsized influence of AI stocks in major equity indices.

This month’s chart shows the S&P 500 has set 36 new highs since the start of the year. While it’s a decline from last year’s pace, the number of new highs in 2025 ranks 18^th compared to the past 98 years. The S&P 500’s strong performance this year is part of a broader equity market trend, with multiple other major equity indices also setting new highs. The Nasdaq has logged 36 new highs, the Dow Jones has posted 17, and the small-cap Russell 2000 has recorded six new highs after finally surpassing its 2021 peak.