Weekly Index Performance (Week Ending December 12, 2025):
-
S&P 500: -0.6% for the week (Closing: 6,827.63)
-
Nasdaq Composite: -1.1% for the week (Closing: 23,410.20)
-
Dow Jones Industrial Average: +0.2% for the week (Closing: 48,476.10)
-
Russell 2000: +0.4% for the week (Closing: 2,490.50)
Volatility ticked higher, with the VIX climbing back above 16 on Friday, reflecting nervousness about high valuations in the semiconductor sector despite the favorable macro backdrop.
Macro & Policy: The Easing Cycle Continues
The dominant event of the week was the Federal Open Market Committee's (FOMC) decision on Wednesday, December 10, to lower the federal funds rate by 25 basis points.
-
The Decision: This marks the third rate cut in this easing cycle (which began in late 2024), bringing the target range down to 3.50% – 3.75%. The decision was not unanimous; three officials dissented, arguing for a pause due to lingering inflation risks from tariffs.
-
Powell’s Tone: In his press conference, Chair Powell emphasized a "data-dependent" approach for 2026, noting that while the labor market has cooled, it remains functional. He signaled that the "neutral" rate might be higher than previously thought, tempering expectations for aggressive cuts next year.
-
Inflation Update: Thursday's data confirmed that while goods inflation has stabilized, services inflation remains sticky, complicating the "victory lap" narrative.
Technology & Corporate News: M&A Wars and Margin Worries
While the Fed provided support, the technology sector weighed on the broader market as investors punished companies for margin compression and expensive acquisitions.
-
Broadcom (AVGO): Shares plummeted -12% on Friday. Despite beating top-line revenue estimates driven by AI demand, the company issued cautious guidance regarding gross margins for 2026. Contrary to rumors of a new split, the stock remains volatile post-earnings as the market questions the sustainability of its pricing power.
-
Netflix (NFLX): The streaming giant finished the week down ~6% as the battle for Warner Bros. Discovery intensified. While Netflix lodged a massive $72 billion bid earlier in the month, a hostile all-cash counter-offer from Paramount (Skydance) has sparked a bidding war. Investors are growing wary of the potential debt load ("Debtflix") required to seal the deal and the looming antitrust scrutiny from Washington.
-
Oracle (ORCL): Shares pulled back 4.6% late in the week, swept up in the broader software sell-off, despite a solid earnings report earlier in the week.
Economic Data: Post-Shutdown Stabilization
Data releases remain noisy as agencies clear the backlog from the 43-day government shutdown earlier this fall.
-
Weekly Jobless Claims: Claims fell to 218,000, a positive sign that the labor market disruptions caused by the shutdown are beginning to normalize.
-
Mortgage Rates: The average 30-year fixed mortgage rate dipped slightly to 6.15% following the Fed's move, sparking a modest 12% jump in refinance applications. However, the 10-year Treasury yield remains stubborn near 4.10%, preventing a steeper decline in borrowing costs.
Valuation & Sentiment: A Healthy Pullback?
With the S&P 500 trading near 22x forward earnings, valuations remain elevated but have retreated slightly from the extremes seen in November.
-
The Bull Case: The Fed is cutting into a non-recessionary economy. Historical seasonality favors the second half of December, and the rotation into "value" sectors (Financials and Industrials) suggests the rally is broadening beyond Big Tech.
-
The Bear Case: The tech sector is showing cracks. The negative reaction to Broadcom’s earnings and the Netflix M&A drama suggests that execution risk is rising. If the "AI trade" falters, the index lacks a clear driver to push through 7,000 before year-end.
Looking Ahead: The "Santa Claus" Setup
The path to year-end now looks choppier. Next week brings the delayed November CPI report, which will be critical. If inflation shows signs of re-accelerating, the "Fed put" may be less potent than investors hope.
The Bottom Line: The Fed delivered the expected cut, but the market sold the news. Given the diverging performance between sectors and the return of volatility, the single most critical strategy for investors right now is the absolute necessity of diversification to mitigate concentration risk.
