Weekly Macro Report, December 7 2025

1. Economic Growth & Outlook

The S&P 500 closed at 6,870.40 on December 5, 2025, reflecting a year-to-date gain of approximately 12.6%, indicating sustained equity market strength. U.S. GDP grew at a robust 3.8% annualized rate in Q2 2025, revised upward from earlier estimates, supported by strong consumer spending and business investment. The effective federal funds rate stood at 3.89% in early December 2025, down from above 4% earlier in the year, with futures implying a gradual easing path. This combination signals resilient growth and labor markets while inflation pressures appear contained for the near term.

2. Labor Market

The U.S. labor market in September 2025 showed a slight deterioration as the unemployment rate rose to 4.4%, the highest since October 2021, with unemployed persons increasing by 219,000 to 7.6 million. Employment gains occurred mainly in health care and food services, while transportation and federal government jobs declined. Payroll revisions lowered prior months’ gains by 33,000. These signs of modest labor market weakening support expectations that the Federal Reserve may pause further rate hikes or consider easing from the current elevated policy stance.

3. Interest Rates

As of early December 2025, the 5-year Treasury yield rose to approximately 3.7%, while 20- and 30-year bond yields climbed to around 4.75% and 4.79%, respectively, signaling slightly higher long-term government borrowing costs. Investment-grade corporate yields remain elevated near 5%, reflecting steady business borrowing costs but still attractive returns for investors. Meanwhile, mortgage rates have started to tick higher after recent dips, increasing costs for homebuyers and limiting affordability despite some easing earlier. These trends suggest cautious spending for households and sustained financing expenses for businesses amid evolving market conditions.

4. Yield Spreads

As of early December 2025, the US yield curve remains positively sloped with the 10-year Treasury yield about 0.58% above the 2-year, signaling moderate economic growth expectations around 3.0% for the coming year. The 10-year TIPS real yield at approximately 1.84% suggests investors anticipate steady inflation-adjusted returns, supporting a resilient economic outlook. Meanwhile, US credit spreads for BBB-rated corporates hover near 1.02%, indicating stable investor risk appetite without significant stress in credit markets.

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5. Inflation Dynamics

As of September 2025, U.S. headline CPI rose 3.0% year-over-year, driven primarily by shelter costs up 3.6% and energy prices with a notable 4.1% monthly jump in gasoline. Core CPI, excluding food and energy, declined slightly to 3.0%. The Producer Price Index increased 2.7% annually in September, often signaling CPI trends ahead. As of early December 2025, 10-year breakeven inflation rates embedded in TIPS remain steady near recent levels, reflecting moderate long-term inflation expectations relative to global peers.

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6. Money Supply

The U.S. M2 money supply reached a record $22.3 trillion in October 2025, growing 4.6% year-over-year and 0.4% month-over-month. This expansion marginally exceeds Q2 real GDP growth of 2.1% but remains below the 3.0% year-over-year CPI inflation rate in September 2025, indicating liquidity growth slightly outpaces economic output but is broadly neutral for inflation. The main drivers of M2 growth are increased demand deposits and money market fund balances concentrated among major asset managers, reflecting a shift in household and business liquidity distribution.

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7. Consumer Sentiment

The University of Michigan Consumer Sentiment rose to 53.3 in December 2025, up from 51.0 in November, while Expectations improved more notably to 55.0 from 51.0, narrowing the usual negative spread. The yield curve spread between 10-year and 3-month Treasury yields remains modestly positive at about 0.43%, reflecting cautious optimism in macroeconomic growth prospects. This alignment suggests households’ improved financial outlook, especially among younger consumers, is modestly mirrored by bond markets’ pricing of future economic conditions and inflation.

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8. Housing Market

Home prices show mixed signals: many U.S. cities, especially in the Southeast and West, face projected declines up to 10%, while most others expect modest rises near 4%. Existing home sales in October 2025 increased modestly by 1.2%, reaching about 4.1 million annually, still below pre-pandemic levels. Housing inventory ticked slightly down to 1.52 million units in October but remains elevated relative to the past few years, easing buyer competition. Meanwhile, 30-year fixed mortgage rates hovered near 6.2%, slightly lower than earlier in 2025, supporting affordability gains and encouraging buyer activity. Together, these trends suggest a gradually balancing market with improved choices and affordability pressures easing.

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9. Stock Market Sectors

Communication Services and Technology led US sectors into early December 2025, supported by strong gains from mega-cap AI-focused stocks like Alphabet and Meta. Health Care also outperformed, buoyed by robust November returns and stable fundamentals. In contrast, Consumer Discretionary, Utilities, and Real Estate lagged, pressured by consumer spending concerns and sector-specific headwinds, with Utilities notably oversold. Energy showed modest positive movement amid stable oil price forecasts. Financials and Industrials registered slight declines, with breadth narrowing outside the top tech and communication names, highlighting a market still narrowly led by AI themes.

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10. Stock Market Valuation

As of early December 2025, the S&P 500 PE ratio stands around 27.5-29.2, above its 5- and 10-year averages, while the Shiller PE remains elevated near 40, signaling continued high cyclically adjusted valuations. The Buffett Indicator also suggests a market premium over GDP, reflecting rich equity valuations. Compared globally, US markets trade at a premium driven primarily by sustained strong earnings growth exceeding 13% annually, robust profit margins, and dominance of growth-oriented mega-cap tech stocks, contrasting with comparatively lower valuations in international markets.

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11. Stock Market Internals

As of early December 2025, the VIX declined from 17.24 on December 1 to 15.41 by December 5, reflecting a nearly 11% drop in implied volatility. Momentum and Growth factors continue to lead returns, while Value and High Dividend Yield show modest underperformance. Minimum Volatility and Quality factors have held steady, and Small Cap equities have lagged slightly. This contraction in volatility alongside sustained Momentum dominance suggests growing investor confidence and a preference for risk-taking amid subdued uncertainty.

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12. Global Equity Performance

US equities led global gains through Q3 2025, with the S&P 500 rising 7.8% and the Russell 2000 small-cap index up 12%, driven by strong earnings and an easing Federal Reserve stance. European markets demonstrated solid performance, with the Stoxx 600 gaining 13% year-to-date and improved prospects due to fiscal stimulus and rising capex. Emerging markets, exemplified by China and India, outperformed with over 30% returns, benefiting from a revival in technology and AI investment coupled with attractive valuations relative to the US and Europe.

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13. Commodities

Gold rose 5.9% in November 2025, closing above $4,200 per ounce for the first time, driven by fiscal dominance, rising global debt, and the Fed’s pivot to “QE-lite.” Silver jumped 19% in November, reaching a record $56.50 per ounce, fueled by declining mine production and rising industrial demand from EVs, AI, and solar energy sectors. Meanwhile, copper surged over 3% in early December, hitting a record $11,520 per tonne due to supply disruptions and optimism from easing US-China trade tensions supporting long-term demand for electrification and AI infrastructure.

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14. Crypto Market

Bitcoin is trading near $89,400, reflecting moderate softness with about 1.4% loss over the past week, while remaining within a forecast range just under $90,000. Ethereum is near $3,020, showing a mild 3% upward trend expected to reach $3,120 shortly. Ethereum's recent performance is gaining relative strength versus Bitcoin, supported by ongoing upgrades and its energy-efficient proof-of-stake model. The broader crypto market remains driven by institutional interest in Bitcoin's scarcity and Ethereum’s utility innovations amid cautious investor sentiment.

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15. Currencies

The US dollar strengthened in early December, with USD/JPY rising to 155.3 and GBP/USD to 1.33, reflecting persistently high US rates at 4.25%. The euro weakened below 0.89 USD amid slower Eurozone growth, while the Chinese yuan held near 7.08 USD, supported by targeted policy. The Canadian and Australian dollars eased versus USD, pressured by commodity price dips and divergent central bank rates. The Swiss franc traded around 0.80 USD amid safe-haven flows, and the New Zealand dollar gained slightly on 3.00% rates. These shifts signal restrained global trade growth and continued capital flow into US assets, keeping inflation and policy outlooks diverse.

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16. Debt Levels

As of mid-2025, U.S. federal debt stands around 121% of GDP, above many advanced peers but below Japan’s extreme levels. Household debt is approximately 69%, and corporate debt near 74% of GDP, reflecting significant private leverage. A key risk remains the rising interest burden on federal debt, squeezing discretionary spending and raising refinancing costs. For policymakers, this underscores the urgency of fiscal restraint and debt management, while investors face potential volatility and must price in higher long-term rates amid persistent deficits and elevated debt ratios.

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17. Economic Calendar

In the month ahead, the December 10 Consumer Price Index will be pivotal; inflation exceeding 3% may pressure the Fed to maintain current rates. The December 5 Employment Situation report will shed light on labor market strength, influencing the Fed’s assessment of economic resilience. The Federal Open Market Committee will meet December 9-10, where these data points will be central in deciding the federal funds target rate trajectory. Strong inflation or labor data could delay easing any adjustments beyond this cycle.

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An error appeared while loading the data. Maybe there is a technical problem with the data source. Please let me know if this happens regularly @silvan_frank.