U.S. stocks were largely flat in December as investor sentiment remained cautious. Economic data reinforced expectations for a more accommodative policy environment from the Federal Reserve (Fed). Inflation continued to ease, the unemployment rate rose in November, and the Fed delivered a widely anticipated quarter-percent rate cut at its December meeting, lowering the federal funds rate to a target range of 3.50%–3.75%. A delayed report showed 3rd quarter GDP growing by over 4%, surpassing expectations yet stock gains remained subdued during the month.
Despite the quiet finish, U.S. stocks delivered a solid final quarter and capped off another great year of performance. Returns in 2025 were driven primarily by continued AI-led growth, multiple Fed interest rate cuts, and easing trade tensions following tariff-related volatility earlier in the year.
International stocks posted a strong December and delivered stellar performance for the year. International stocks outpaced U.S. stocks over the final quarter and year to date, reversing the U.S.-led outperformance seen in recent years and rewarding diversified portfolios. Easing global inflation, fiscal stimulus, and a weaker U.S. dollar supported markets abroad. Emerging markets led the way in 2025, outperforming developed markets, as a softer inflation backdrop and improving growth conditions drove strong performance.
Bonds had their best year since 2020, as declining interest rates and moderating inflation supported prices. U.S. bonds outpaced international bonds for the year.
Looking ahead to the new year, markets remain focused on several key themes, including ongoing geopolitical conflicts, the durability of the AI-driven growth cycle, and upcoming corporate earnings reports. Investors will also closely monitor the Fed’s policy path, particularly how inflation and labor market trends influence future rate decisions, as well as leadership changes at the Fed, with a new Chair expected to be appointed in May.
Source: Morningstar, Inc.
Disclosure: There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this market commentary serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Investment Advisers, LLC. This information was gathered from reliable sources, but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Raffa actively leverages Artificial Intelligence and Large Language Models within our operations. The use of such technologies, focusing on the safeguard of non-public personal information, protecting of trade secrets, verification of information accuracy, and other pertinent compliance considerations, is outlined in Raffa’s Compliance Manual and acknowledged by Raffa staff. All viewpoints and final content created was reviewed and approved by the Raffa team to verify accuracy, perspective, and compliance with our marketing guidelines.
December 2025 Market Commentary & Outlook
Market Commentary
U.S. stocks were largely flat in December as investor sentiment remained cautious. Economic data reinforced expectations for a more accommodative policy environment from the Federal Reserve (Fed). Inflation continued to ease, the unemployment rate rose in November, and the Fed delivered a widely anticipated quarter-percent rate cut at its December meeting, lowering the federal funds rate to a target range of 3.50%–3.75%. A delayed report showed 3rd quarter GDP growing by over 4%, surpassing expectations yet stock gains remained subdued during the month.
Despite the quiet finish, U.S. stocks delivered a solid final quarter and capped off another great year of performance. Returns in 2025 were driven primarily by continued AI-led growth, multiple Fed interest rate cuts, and easing trade tensions following tariff-related volatility earlier in the year.
International stocks posted a strong December and delivered stellar performance for the year. International stocks outpaced U.S. stocks over the final quarter and year to date, reversing the U.S.-led outperformance seen in recent years and rewarding diversified portfolios. Easing global inflation, fiscal stimulus, and a weaker U.S. dollar supported markets abroad. Emerging markets led the way in 2025, outperforming developed markets, as a softer inflation backdrop and improving growth conditions drove strong performance.
Bonds had their best year since 2020, as declining interest rates and moderating inflation supported prices. U.S. bonds outpaced international bonds for the year.
Looking ahead to the new year, markets remain focused on several key themes, including ongoing geopolitical conflicts, the durability of the AI-driven growth cycle, and upcoming corporate earnings reports. Investors will also closely monitor the Fed’s policy path, particularly how inflation and labor market trends influence future rate decisions, as well as leadership changes at the Fed, with a new Chair expected to be appointed in May.
Source: Morningstar, Inc.
Disclosure: There is no guarantee that any investment strategy, including those described here, will be successful. Any investment or investment strategy can lose money. Past performance does not guarantee or predict future results. You should not assume that any discussion or information contained in this market commentary serves as the receipt of, or as a substitute for, personalized investment advice from Raffa Investment Advisers, LLC. This information was gathered from reliable sources, but we cannot guarantee accuracy. Indexes do not reflect the fees associated with actual investments and such fees would reduce the performance illustrated. Raffa actively leverages Artificial Intelligence and Large Language Models within our operations. The use of such technologies, focusing on the safeguard of non-public personal information, protecting of trade secrets, verification of information accuracy, and other pertinent compliance considerations, is outlined in Raffa’s Compliance Manual and acknowledged by Raffa staff. All viewpoints and final content created was reviewed and approved by the Raffa team to verify accuracy, perspective, and compliance with our marketing guidelines.