Weekly Market Watch

Holiday Liquidity Party

Global equities delivered mixed performance last week as U.S. small-capitalization (cap) stocks led and the S&P 500^® reached an all-time high midweek. Investor sentiment was supported by the Federal Reserve’s (Fed’s) anticipated 25-basis-point (bp) rate cut, alongside its announcement of reserve management purchases at a pace of $40 billion per month to enhance market liquidity and maintain ample reserves. While these monetary policy actions provided a constructive backdrop for global markets, domestic equities moderated slightly on Friday as leading artificial intelligence companies recalibrated their outlooks.

Market Outlook

The latest Summary of Economic Projections (SEP) from the Fed predicts one 25-bp rate cut in 2026, coinciding with stable unemployment levels and a continued deceleration of the Fed’s preferred inflation measure, the Personal Consumption Expenditures Price Index. The projections notably increased the Real GDP forecast for 2026 from 1.8% to 2.3%, which aligns with our belief that the economy will maintain its current momentum. As economic data releases resume following the recent shutdown, we expect this week’s reports on labor markets and inflation will be closely monitored by investors. We expect Consumer Price Index (CPI) data to confirm that inflation remains contained, supported by a sustained downtrend in its services component.

Chart of the Week

With the Fed’s 25-bp rate cut last week, U.S. monetary policy is starting to diverge from that of other developed-market central banks.

In contrast to the Fed, major European central banks have been maintaining their policy rates and the Bank of Japan is even expected to hike rates at its December meeting this week.

We believe that monetary policy divergence should continue to provide differentiated investment opportunities for investors in 2026.

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