Weekly Investment Update (12/19/2025)

Our next Weekly Investment Update will be published on January 9, and our Quarterly Investment Perspective, which will discuss our year-ahead outlook in detail, will be published in early January. We wish you and your loved ones a happy holiday season.

Markets steadied toward the end of the week after a period of AI-driven volatility. Micron’s strong earnings and raised outlook helped improve sentiment across the technology sector, offsetting recent concerns around capital expenditures, debt issuance, and return on investment. While scrutiny around AI infrastructure spending continues, we see the recent correction as healthy and consistent with elevated expectations rather than a change in the long-term story.

Macro data were mixed but leaned supportive. November CPI came in below expectations, with clear signs of disinflation across key categories. Labor data showed modest job growth and a slight uptick in unemployment, suggesting a gradually cooling but still resilient labor market — weekly initial unemployment claims remain stable. In reaction to this week’s data, Fed commentary leaned slightly dovish, reinforcing the case for a gradual easing cycle into 2026.

Taken together, we believe inflation is cooling, the job market remains resilient, and AI-related investments are regaining some momentum. Though risks remain, the overall tone feels more balanced, and market participants appear increasingly focused on positioning for a steadier environment as the year draws to a close.

Mixed Labor Market Signals Complicate the Fed’s Interest-Rate Decision

What is happening: This week brought two months of nonfarm payrolls data — October and November — as releases were delayed by the 43-day government shutdown. The mixed results showed sharp October losses followed by modest November gains. Overall, the net shifts continue to point to a still-growing but weakening job market. Seasonally adjusted nonfarm payrolls (which include the government and private sectors) declined 105,000 in October, below expectations. Most of the October losses were driven by a decline in the number of federal government employees. An estimated 162,000 federal workers who took the DOGE-related deferred buyout options earlier in the year were included in the October job loss numbers. November saw a rebound with 64,000 new jobs added, ahead of the consensus estimate of 45,000.

Despite the modest gain, the unemployment rate rose to 4.6%, a level not seen since September 2021. The labor force participation rate inched up 0.1% to 62.5% in November. Workers did not see much of a change in salaries as average hourly earnings increased by only 0.1% last month, below the consensus estimate of 0.3%. However, over the past 12 months, average hourly earnings have increased by 3.5%. 

Why it matters: The strength of the labor market will likely be the main determinant of the economic environment in 2026. Mixed labor market data and uneven job growth will continue to challenge the Fed, corporate CEOs, and small business owners. As policymakers handicap the pace of decelerating job growth with inflation and the lag effect of rate cuts (it typically takes several quarters for monetary policy changes to actually impact the economy), their decisions on how much to cut and when continue to be debatable and less obvious. Reducing interest rates could be justified if the labor markets hit an inflection point and are poised to further decline. However, if there is a shift in the breakeven rate of employment and the economy can still expand and increase productivity without creating as many jobs as before, aggressive rate cuts could prove problematic. Similarly, executives and hiring managers remain challenged as they seek to optimize their human capital. Determining how many to hire or fire also becomes less obvious as uncertainty regarding the cost of labor, cost of capital, and return on investments is amplified.

Cooler Inflation Reinforces Disinflation Trend, But With a Caveat 

What is happening: The November CPI figure came in meaningfully below expectations; headline inflation slowed to 2.7% year-over-year versus the expected 3.1%, while core CPI eased to 2.6% year-over-year compared to a 3.0% consensus. Shelter, which is a large part of the CPI basket and an even larger part of the core CPI basket (which excludes volatile food and energy components) eased from 3.6% year-over-year in September (the last available print) to 3.0% in November, an unusually large decrease in a typically slow-moving data point. 

Due to the government shutdown, there will be no CPI report for October, and the November CPI print is based on just two weeks of data collection rather than the usual four, perhaps making the signal weaker than would otherwise be the case. December’s CPI number due in mid-January will therefore carry more weight as either confirming or undermining November’s figures. 

Why it matters: A softer-than-anticipated inflation reading gives the Fed more room to focus on the weakening labor market and validates the rationale behind recent rate cuts. Importantly, it supports market expectations for monetary easing beyond the current Fed projections for 2026. We believe this creates a favorable setup for both equities and bonds as the calendar runs out on 2025. While limited data quality warrants some caution, this inflation print strengthens the case that the disinflation trend remains intact, and that the Fed may have greater flexibility than previously assumed as it navigates the year ahead.  

Bessemer portfolios remain overweight equities given the combination of resilient growth, easing inflation, and strong corporate earnings. Within equities, portfolios have an overweight to the U.S., and the combination of monetary and fiscal easing in 2026 should be supportive of this positioning. Fixed income positioning is long duration given the continued easing bias of central banks, and November’s CPI print reinforces this positioning.