Weekly Investment Update (12/05/2025)

Stocks navigated another mixed week of crosscurrents, but the tone remained fundamentally constructive. For the seventh straight month, the S&P 500 posted a gain, even as large-cap tech and AI-related names struggled. Beneath the surface, market breadth improved, earnings revisions trended higher, and equal-weighted indices outperformed, suggesting that performance is broadening beyond the index leaders.

Labor market data remained somewhat mixed but overall was steady. Initial claims fell to the lowest level since 2022, while job cuts, though elevated, were generally company-specific reorganizations concentrated in a few sectors, such as telecom and tech. Consumer commentary continued to show signs of bifurcation. Walmart noted some wallet pressure among lower-income households, while Mastercard emphasized that overall spending remains healthy, supported by wage growth across segments. More broadly, consumer sentiment readings were weak, but these survey results have not translated into a meaningful drop in actual spending.

With the Fed in a quiet period ahead of its next meeting, markets remain focused on the path of policy and potential leadership changes. While rate cut expectations for December moderated slightly, another rate cut remains the base case for December. Combined with solid earnings growth, steady labor dynamics, and a consumer that is slowing but not stalling, we remain constructive heading into year-end.

Probability of December Fed Rate Cut Now Exceeds 90%

What is happening: Less than a month ago, the futures market-implied probability of a Fed rate cut at next week’s FOMC meeting was down to 40%. That probability has now rebounded above 90% due to a combination of recent developments. A delayed September jobs report actually surpassed expectations with 119,000 net job additions, but the prior months’ numbers were revised down by another 33,000, and the unemployment rate reached a four-year high of 4.4%. ADP data released on Wednesday also showed some labor market softening, with monthly net job additions of –32,000 compared to expectations of +40,000. Moreover, New York Fed President John Williams recently shared dovish-leaning comments, noting that current interest rates are restrictive and that there is room to further lower rates. Market participants generally pay closer attention to Williams’ comments because he is viewed as a leader of the FOMC, along with Chairman Jerome Powell and Vice Chair Philip Jefferson. Separately, according to political betting website Polymarket, current Director of the National Economic Council Kevin Hassett’s odds of becoming the next Fed chairman now exceed 70%, making him the favorite to win the nomination.

Why it matters: If the Fed cuts interest rates by 0.25% at the upcoming December meeting, that would mark the third consecutive reduction this year (after September and October). It would also be a clear signal that the Fed is prioritizing support for the labor market over battling inflation. A rate cut would ease borrowing costs and give some breathing room to households and businesses.

At its December meeting, the Fed will also be issuing an updated summary of economic projections (SEP) that will include forecasts for GDP growth, inflation, unemployment, and interest rates. Among other data points, it will be important to watch for any changes to the unemployment rate and fed funds rate forecasts. The September SEP showed three 0.25% rate cuts in 2025 followed by one each in 2026 and 2027. For comparison, the futures market is currently anticipating three cuts in 2025 and two more in 2026.

The nomination of Kevin Hassett would likely shift the Federal Reserve to a more dovish posture. Hassett is widely viewed as having a greater inclination toward faster rate cuts than many incumbent Fed officials. If confirmed, more rate cuts could potentially boost risk assets, stimulate consumption, and help kick-start sectors sensitive to interest rates, such as housing.

On the flip side, a Hassett-led Fed could increase concerns about the central bank’s ability to control inflation. All else being equal, an uptick in future inflation expectations would cause long-term bonds yields to rise.

However, given that the FOMC has 12 voting members, it is unlikely that Hassett’s confirmation would cause Federal Reserve policy to be dramatically different from the latest SEP projections. For instance, the 10-year and 30-year U.S. Treasury bond yields have both increased by approximately 0.10% since Hassett became the clear frontrunner, signifying the expectation for looser monetary policy at the margin rather than a seismic change in central bank governance. It is also important to note that Hassett is not guaranteed to become the next Fed chair, and betting market odds can shift wildly, as they have throughout this year.

Robust Third-Quarter Earnings Support Positive Equity Outlook

What is happening: The third-quarter earnings season delivered exceptionally strong results for U.S. equities, with S&P 500 earnings rising 12.9% year-over-year — easily surpassing expectations and marking the fourth straight quarter of double-digit growth. Roughly two-thirds of companies beat top-line expectations, and 83% of companies exceeded earnings estimates. Margins expanded to 13.1% for the index, the highest in several years.

Importantly, positive momentum was seen across industries. All 11 S&P 500 sectors reported positive sales surprises, and 10 of 11 posted positive earnings surprises, with communication services the only sector falling short. Within the positive breadth of earnings surprises, the industrials sector has reported the largest positive difference between actual and estimated earnings, followed by healthcare — both sectors where Bessemer portfolios are overweight.

Strength extended beyond the U.S. as well. In developed international and emerging markets, earnings grew 15.5% year-over-year, delivering a sizable 9.1% earnings surprise relative to expectations. Nine of 11 sectors reported positive earnings surprises, led by Materials, which benefited from the sharp rally in gold and other metals.

Why it matters: With equities well into an extended bull market and valuations elevated relative to historical averages, strong earnings are essential to sustaining upward momentum. This quarter’s broad-based earnings surprises not only support current valuation levels but also suggest that additional upside remains possible if profit growth continues to exceed expectations.

The breadth of outperformance — across sectors, geographies, revenue, and earnings — reinforces that the profit cycle remains healthy at a time when investors are increasingly scrutinizing the durability of the current market rally. For all the discussion surrounding valuation risk and bubble dynamics, companies are delivering robust profitability and meaningful operating leverage.

Taken together, this earnings season further supports our overweight stance in equities. Strong and accelerating earnings, combined with resilient margins and global breadth, provide a solid foundation for continued equity market performance as the cycle matures.