December 2025 Market Review

Quick Take — December 2025

Chief Investment Strategist Perspective

U.S. markets closed 2025 in a transitional macro phase rather than a clear inflection point. Moderating inflation data, resilient corporate earnings, and relatively stable financial conditions supported risk assets into year-end; however, elevated equity valuations and compressed volatility suggest markets are discounting a narrow and favorable range of outcomes. In this environment, sensitivity to changes in interest rates, earnings expectations, policy signals, or geopolitical developments remains elevated. As investors and advisors position for 2026, disciplined portfolio construction and risk-aware ETF implementation become increasingly important as return drivers shift away from broad beta and toward selectivity, earnings quality, and cash-flow durability.

Month in Review — U.S. Equities

U.S. equities posted modest gains in December following a strong November, extending a year characterized by concentration in large-cap growth and technology-oriented segments. The S&P 500 (SPX) rose approximately 1.9% for the month, while the Nasdaq-100 (NDX) gained about 2.7%, supported by continued investor preference for companies with visible earnings growth, pricing power, and exposure to long-duration innovation themes such as artificial intelligence. The Russell 2000 increased roughly 1.2%, lagging large-cap indices as higher funding costs and tighter financial conditions continued to weigh on smaller-capitalization companies.

From a trend perspective, major indices remained above key intermediate-term moving averages into year-end, consistent with positive momentum as markets transitioned into 2026. Beneath headline index performance, however, valuation dispersion widened, reflecting a more selective market environment where fundamentals increasingly matter more than index-level exposure.

Index Levels (as of period end)

Fixed Income & Rates

Fixed income markets were relatively stable in December as Treasury yields traded within a narrow range following the Federal Reserve’s December meeting. After rate cuts earlier in the second half of the year, policymakers held rates steady, reinforcing a data-dependent posture rather than signaling an aggressive easing cycle. The 10-year Treasury yield ended December near 4.05%, while the 30-year yield finished around 4.60%.

The gradual normalization of the yield curve—following a historically prolonged inversion—reflects recalibrated expectations around growth and inflation rather than a decisive acceleration in economic activity. Importantly, real yields remained positive, continuing to influence equity valuation frameworks, discount rates for long-duration assets, and relative attractiveness across asset classes.

Treasury Yields (as of period end)

Inflation & Policy Update

Inflation data released during December reinforced a narrative of gradual disinflation rather than a rapid return to pre-pandemic norms. Core CPI and Core PCE readings were broadly in line with expectations on a month-over-month basis, indicating that goods disinflation has largely played out while services inflation continues to decelerate at a slower pace. Wage growth and labor market rebalancing remain key variables for policymakers.

From a policy standpoint, markets continue to price a soft-landing scenario in which inflation moderates without a sharp deterioration in growth. Nevertheless, the path forward remains sensitive to second-order effects, including shelter costs, fiscal dynamics, and potential supply-side disruptions.

Volatility Update

Market volatility remained subdued into year-end, with the VIX Index finishing December in the mid-teens. Historically, such levels have been associated with stable growth expectations and ample liquidity. At the same time, extended periods of low implied volatility can coincide with underpricing of tail risks—particularly in environments characterized by elevated leverage, geopolitical uncertainty, or asymmetric policy outcomes.

Macro Risk Framework — Entering 2026

As markets move into 2026, several macro risk vectors warrant close monitoring:

• Inflation & Policy: Gradual moderation continues, but services inflation and labor dynamics remain constraints. The Federal Reserve is likely to maintain a cautious, data-dependent stance rather than pursue aggressive easing.
• Interest Rates & Yield Curve: Partial normalization reflects recalibrated expectations, while positive real yields continue to influence valuation and asset-allocation decisions.
• Economic Growth & Earnings: Growth remains resilient but uneven. Earnings quality, margin sustainability, and cash-flow generation are increasingly important as financing conditions normalize.
• Volatility & Liquidity: Compressed volatility may understate tail risks, increasing the potential for abrupt regime shifts.
• Geopolitical Risks: Persistent geopolitical uncertainty may generate episodic volatility, contributing to higher dispersion across sectors and asset classes.

NestYield ETF Perspective

Within this macro and market context, December underscored the importance of systematic, risk-aware ETF construction. Late-cycle environments often feature higher dispersion and less reliable correlations, reducing the effectiveness of passive exposure alone. Approaches that emphasize disciplined processes, defined risk parameters, and repeatable implementation may help investors and advisors navigate shifting volatility regimes and evolving market structure.

EGGQ — NestYield Visionary ETF

EGGQ seeks to provide equity exposure to innovation-oriented companies while incorporating a systematic options framework intended to support income generation and risk management. In higher-valuation, lower-volatility environments, options-based strategies may influence return distributions; however, outcomes remain dependent on market conditions, execution, and the inherent risks and costs associated with derivatives.

Looking Ahead — Key Items to Monitor

As markets enter 2026, areas of focus include inflation trends, labor market data, corporate earnings and forward guidance, Federal Reserve communications, yield-curve dynamics, and geopolitical developments. While moderating inflation and stable growth expectations have supported risk assets, elevated valuations suggest forward returns may increasingly depend on selectivity, cash-flow resilience, and disciplined risk management rather than broad multiple expansion.

Sources (publish-ready)

• Index levels & rates: Bloomberg or equivalent third-party data providers (as of Nov 29, 2025 and Dec 30, 2025).
• Treasury yields: U.S. Treasury market data (as of stated dates).
• Inflation data (CPI/PCE): U.S. Bureau of Labor Statistics (BLS) and U.S. Bureau of Economic Analysis (BEA).
• Volatility: Cboe VIX Index (as of period end).

Data as of December 30, 2025.

Disclosures

This material is provided for informational and educational purposes only and does not constitute investment advice or a recommendation to buy or sell any security. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future results. Market conditions are subject to change, and there is no guarantee that any investment strategy will achieve its objectives. Options trading involves risk and is not suitable for all investors.