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.

October saw markets navigate a complex mix of political and economic developments as the Federal Reserve cut rates by 0.25% amid the second-longest government shutdown in US history. The data blackout caused by the shutdown forced policymakers to act without fresh economic indicators, with Chair Powell citing rising employment risks as the primary concern. Despite political gridlock and mixed economic signals, stocks closed the month near all-time highs after rebounding from early credit worries tied to regional banks and renewed US–China trade tensions. Encouraging progress at the late-October Trump–Xi summit and strong corporate earnings helped restore confidence. As investors look to year-end, sentiment remains cautiously optimistic—supported by the Fed’s easing stance, AI-driven growth enthusiasm, and resilient earnings—though elevated valuations, slowing job growth, and uncertainty over another rate cut keep expectations measured.

This week, markets were mixed as early strength gave way to caution following Fed commentary and tech earnings. Stocks initially rallied after last week’s better-than-expected inflation report, sending the S&P 500, Nasdaq, and Dow Jones to new highs. However, the strength faded after the Fed cut, with Chair Powell questioning a December cut. Mega-cap tech earnings also weighed on sentiment, as companies reported strong growth and forecasts for rising capital expenditures. Bonds traded lower, with longer-maturity bonds underperforming. Commodities were mixed: oil gave back recent gains, while gold stabilized after last week’s sell-off. 

This week, markets were volatile as credit concerns, trade tensions, and an unwind of speculative positions weighed on sentiment. The S&P 500 rebounded early after last week’s regional bank sell-off but lost momentum after the administration floated new software export controls and US–China tensions flared. Bonds edged higher as Treasury yields fell amid economic uncertainty, the government shutdown, and expectations for a rate cut next week. Commodities were volatile: gold and silver spiked early before reversing lower, while oil rebounded late after hovering near a 4.5-year low. The VIX eased after last week’s spike but remained elevated, reflecting caution across markets.

This week, markets declined as renewed US–China trade tensions and the government shutdown weighed on sentiment. The S&P 500 and the NASDAQ finished lower, giving back gains from earlier in the month, while small caps ended the week flat. Defensive sectors outperformed as market volatility increased, while financials led to the downside due to rising concern over commercial-loan exposures. Longer-maturity bonds outperformed, and high-yield corporate bonds underperformed investment grade. Gold surged to a new high, while crude oil fell over -6% to early 2021 levels.