Weekly Investment Update (12/12/2025)

Markets continued to digest a range of moving pieces this week, with notable volatility in several high-profile stocks, particularly those tied to AI and large-cap technology. While expectations for companies such as Broadcom were undeniably high, and the market response muted despite strong results, we see this more as a recalibration of near-term expectations than a shift in the fundamental story. In our view, the long-term AI investment cycle remains firmly intact. Periods of skepticism are a natural part of any growth narrative, especially when valuations are elevated and visibility around monetization continues to evolve.

For example, Broadcom (a Bessemer holding) delivered impressive guidance, including a doubling of AI-related revenues in the coming quarter and robust new orders from major customers. Yet the stock traded lower, reflecting the market’s elevated bar and the complexity of interpreting large, long-term backlog figures. Still, demand for compute and infrastructure remains strong, with additional AI-related announcements from Disney, OpenAI, and Rivian reinforcing the breadth of innovation underway.

Outside of AI, the macro backdrop showed encouraging signs. The December Fed meeting leaned less hawkish than feared, supporting a rotation into more economically sensitive stocks and helping extend the rally in equal-weighted indexes. The labor market, while noisy, remains steady, with jobless claims stabilizing and the JOLTS report indicating solid demand. Consumer data remain mixed, but earnings from key companies and ongoing buyback activity point to a supportive environment. As always, we continue to watch for signs of softening, particularly in lower-income cohorts and housing, but overall, the foundation for growth and earnings remains in place. Revisions continue to trend higher, and positioning has reset, leaving room for further upside as we head into the final weeks of the year.

Fed Lowers Rates and Signals Data Dependence Amid Gradually Softening Labor Market

What is happening: The FOMC lowered the target range for the federal funds rate by 25 basis points to 3.50%-3.75%, marking the third consecutive meeting with an interest-rate cut. Chair Powell’s press conference was less hawkish than expected, despite signaling that the Fed is likely to keep rates unchanged in the near term. He acknowledged the difficult economic backdrop the Fed faces, with upside risks to inflation and downside risks to the labor market. On the inflation front, he noted that services disinflation remains intact, and that most of the above-target inflation has been driven by tariffs — a one-time price increase that is expected to peak in early 2026. However, Powell placed greater emphasis on labor market weakness, describing job-finding and job-creation rates as “extremely low” and noting that nonfarm payrolls growth is likely negative when incorporating anticipated revisions. Taken together, this commentary suggests the Fed’s reaction function will continue to lean toward preempting further labor market softening.

The December meeting also included an updated Summary of Economic Projections (SEP), with the most notable change from September being an upward revision to median 2026 GDP growth forecasts from 1.8% to 2.3%. While some of this strength reflects activity pushed into next year due to the government shutdown, Powell also cited resilient consumer spending, fiscal support, and continued AI-related investment. At the same time, inflation was revised modestly lower for the year ahead, while expectations for one additional 25-basis-point cut remained unchanged.

Why it matters: Looking ahead, the December FOMC meeting suggests the Fed will return to a more data-dependent approach, marking a shift away from the risk-management cuts emphasized earlier this year. This theme is reflected in Powell’s comment that rates are now at the high end of what the committee views as neutral, or the theoretical level of interest rates that neither stimulates nor restricts economic growth. While labor market weakness persists, the economic backdrop is generally stable, and inflation expectations remain anchored. This gives the Fed flexibility to evaluate whether the current policy is appropriate and adjust if conditions deteriorate more quickly.

Although the timing remains uncertain, interest rates are expected to trend lower in 2026. The market is currently expecting two rate cuts next year, with the first cut coming in June, though the magnitude of policy adjustments will ultimately depend on the incoming data. We expect the Fed to maintain a data-driven stance as it gauges the durability of disinflation and the trajectory of the labor market.

Holiday Sales Hold Firm Amid Uneven Consumer Landscape

What is happening: Black Friday sales delivered another year of solid gains, highlighting the continued resilience of the U.S. consumer, at least on the surface. Retail sales excluding autos rose 4.1% year-on-year, led by e-commerce, where online sales reached a record $11.8 billion, up 9% from the previous year and among the strongest digital retail days on record. In-store activity was more muted, with declines in foot traffic offset by higher conversion rates, suggesting shoppers were more intentional and value-driven. However, the headline figures are not adjusted for inflation, leaving uncertainty around how much of the increase reflects real volume growth versus higher prices, including those driven by tariffs and lingering goods inflation.

Beneath the robust headline lies a more fragmented consumer landscape. Card spending data from Bank of America highlights a persistent K-shaped dynamic: Lower-income households saw just 0.6% year-on-year growth in average card spending over the past three months, while higher-income households saw a 2.6% rise. American Express noted a 9% increase in spending during Thanksgiving week, with Platinum cardholders boosting spending by 13%. After-tax wage growth also continues to favor higher earners. As wage growth stabilizes and the labor market softens, the strength of affluent consumers may be sufficient to sustain retail sales in the near term. But the broader picture points to a consumption recovery increasingly concentrated at the top.

Why it matters: The holiday season is a key barometer for consumer demand, with the Fed and investors closely watching household spending habits. While shoppers tend to splurge on gifts, rising costs across the economy have heightened concern that consumers will buy fewer items. Surveys indicate that lower-income households are prioritizing essentials, trading down within categories, and delaying discretionary purchases. While higher-income consumers remain active, middle- and lower-income cohorts are increasingly reliant on promotional pricing and, in some cases, flexible payment options. 

Retailers, meanwhile, are navigating a delicate balance between driving volume through discounts and protecting margins. Third-quarter earnings have underscored this tension. The early read on holiday performance suggests that, despite mounting economic pressures, aggregate purchasing power remains surprisingly resilient. On its recent earnings call, Walmart, a bellwether for mass-market retail and a Bessemer holding, stated that it "saw strength across income cohorts and especially with higher-income households.” Fiscal stimulus from the One Big Beautiful Bill Act will begin providing support for the lower-income consumer as $150 billion of tax credits start to be distributed in February.