December 2025 Investment Update
Is This the New Normal? A Year in Review
The year 2025 challenged many of the assumptions investors carried into January. The pace of rate cuts, the durability of the labor market, the influence of artificial intelligence on productivity, and the resilience of corporate earnings all shifted throughout the year. Even with these changes, markets adapted and pushed forward.
As we close out the year, we are looking back at what changed and asking an important question: Is this the new normal?
Markets advanced through policy shifts, economic crosscurrents, and persistent headline noise. Throughout these transitions, our focus remained on discipline, strategy, and long term decision making.
Market Recap
A Year Defined by Adaptation
From a cautious start to a constructive finish, the market narrative in 2025 has been one of steady recalibration. The S&P 500, Nasdaq, and Dow each posted healthy gains through late November, supported by improving inflation data, consistent earnings, and clarity around the Federal Reserve’s path.
A few key themes shaped market behavior this year:
- The Federal Reserve began a slow and deliberate rate cut cycle as inflation continued to moderate.
- Earnings remained steady even as revenue growth slowed in certain sectors.
- Labor markets softened, raising questions about whether job losses reflect normal economic rotation or a long term shift toward AI driven efficiency.
2025 was a year of shifting expectations. Despite early volatility, markets moved steadily higher. Through November:
(Source: MarketWatch, SlickCharts Nasdaq, SlickCharts Dow, Rockland Trust, December 1, 2025)
Contributing Factors
What’s driving this market?
The Santa Claus Rally: Momentum Meets Psychology
The final trading days of the year often bring an upward bias in stock prices. While corporate fundamentals matter, part of the Santa Claus Rally effect is driven by investor behavior. Year end rebalancing, tax considerations, and portfolio adjustments by large institutions often create additional buying pressure.
Much of this becomes a self reinforcing pattern. Traders anticipate strength, managers adjust holdings, and investors respond to the momentum. This dynamic is an example of how market behavior can shift based on positioning rather than prediction.
The Federal Reserve and the Path Forward
The upcoming Federal Reserve meeting remains a major focus for investors. Markets broadly expect another rate cut as inflation trends continue to improve. More significant than the cut itself will be the tone of the Fed’s communication. Investors will be listening for clarity on how policymakers see early 2026 shaping up and whether progress on inflation remains consistent with their goals.
Labor Market Shifts and the Influence of AI
Recent reports of higher layoff activity have sparked debate. Some of these job losses are tied to normal economic cycles. Others may signal a deeper shift as companies adopt automation and AI to improve efficiency. This trend has the potential to reshape workforce structures, productivity expectations, and corporate cost management strategies. These changes will remain important areas to watch in the year ahead.
Portfolio Positioning: Moving Slightly More Defensive
Our allocation adjustments this month were guided entirely by our indicators. The data signaled a shift away from small cap stocks, which led us to sell that position and add exposure to Consumer Staples and a low volatility index. Our core holdings remain the same, and we continue to maintain sector allocations to healthcare and biotechnology.
Core Allocations
- Diversified large-cap U.S. equities
- Fixed income aligned with your risk profile
Defensive Changes
- Sold our position in small cap stocks
- Added exposure to Consumer Staples a low volitility index
Areas of Emphasis
Continued focus in Healthcare and Biotech.
Note: Asset allocation and diversification do not guarantee a profit or protect against loss in declining markets. All investments involve risk, including the potential loss of principal.
Looking Ahead
If 2025 was a year of adaptation, 2026 will be a year of intention. Investors are beginning to reassess expectations around growth, inflation, labor trends, and innovation. The coming year is likely to reward patience, quality, and a focus on fundamentals.
This environment is where our investment philosophy provides meaningful value. We rely on a rules based, data driven process that focuses on identifying areas of genuine strength in the market. Instead of attempting to predict where markets should go, we follow clear evidence of where leadership is already taking shape. This removes emotion from decision making and keeps portfolios positioned for opportunity while managing risk.
Our approach also incorporates trend analysis, relative strength indicators, and consistent rebalancing rules. These tools allow us to respond thoughtfully to market shifts without overreacting to short term news. In a period where many investors are driven by headlines, we remain committed to a process that is designed to follow real market behavior.
As we enter 2026, the goal is not to anticipate every movement in the economy. The goal is to stay aligned with meaningful long term trends and position portfolios to benefit from sustained leadership. We believe this disciplined approach will continue to support our clients through both stable and uncertain periods ahead.
A Final Note
Your financial goals remain our priority. If you would like to review your portfolio or discuss strategy as we enter a new year, please reach out to your advisor. We are here to help you move forward with clarity and confidence!
Important Disclosures
This communication is for informational purposes only and does not constitute investment advice, a recommendation, or an offer to buy or sell any security. Strategic Advisory Partners (“SAP”) is a registered investment advisor. Registration does not imply a certain level of skill or training.
Past performance is not indicative of future results. No investment strategy, including trend following, can guarantee profits or protect against losses. Market indices mentioned are unmanaged and cannot be invested in directly. Index performance does not reflect transaction costs, fees, or expenses.
Forward-looking statements, including projections of market performance, earnings growth, Federal Reserve actions, and economic conditions, are based on various assumptions and beliefs that may not prove to be accurate. These statements should not be relied upon for making investment decisions.
Investment decisions should be based on an individual’s own goals, time horizon, and risk tolerance. Diversification and asset allocation do not ensure a profit or protect against loss.
This material has been prepared from sources believed to be reliable but is not guaranteed as to accuracy or completeness. This information may change at any time based on market or other conditions.
©2025 Strategic Advisory Partners. All rights reserved.
