Macro Brief -- Dec 16th, 2025

What I'm telling clients this week: the market narrative is evolving, but the fundamentals remain steady. As economic data pours in, stock futures have shown resilience, albeit with a touch of volatility, as seen with the SPX easing by 0.4% to 6,817. This slight pullback is more of a valuation recalibration than a sign of distress. The cost of capital remains elevated, with the 10Y yield at 4.18%, yet the curve is signaling a positive shift. The 2s/10s spread has swung to +64bps, a move that historically aligns with a reduction in recessionary fears, rather than an escalation.

Credit markets continue to support this narrative of stability. Investment-grade spreads hover around 115 bps, while high-yield spreads are at approximately 350 bps. These levels are far removed from panic territory, indicating that systemic credit stress is not in play. The liquidity plumbing is functioning well, as evidenced by the financial system's capacity to absorb shocks like iRobot's bankruptcy filing. The market absorbed this news with composure, and the ongoing restructuring signals an adaptive, not a faltering, corporate landscape.

In the macroeconomic backdrop, U.S. growth remains modest but firm, with GDP growth rates sustaining a range that suggests neither overheating nor contraction. Inflation dynamics are favorable; core inflation continues its descent, allowing central banks the luxury of gradual policy adjustments. The Fed's stance is one of calculated patience, rather than urgency, enabling a soft economic landing. In Europe, similar trends are observed, with the ECB balancing between growth support and inflation control.

The commodities sector offers further clues. WTI oil prices at $55.75 per barrel reflect a cooling demand environment rather than a collapse, hinting at a balanced global growth outlook. Meanwhile, gold's rise to $4,303 underscores its role as a safe haven and policy hedge in times of monetary uncertainty. The dollar index (DXY) at 98.2 suggests a stabilization in rate differentials, potentially creating room for non-U.S. asset appreciation and select emerging market debt opportunities, where real yields and fiscal credibility remain robust.

On the corporate front, JPMorgan’s foray into tokenized money funds reflects a broader trend of financial innovation and adaptation, suggesting that major financial institutions are positioning themselves for the digital future. This strategic move aligns with the ongoing search for yield in a higher interest rate environment and underscores the importance of forward-thinking adaptability.

In the political arena, President Trump's confidence in a 2026 economic surge serves as a reminder of the underlying optimism about the U.S. economic engine's potential, despite the current late-cycle dynamics. Such sentiments, while politically charged, often resonate with broader market expectations of enduring economic resilience.

As we navigate these waters, the barbell strategy remains our conviction. Core allocations in secular growth sectors—think semiconductor advancements, enterprise software innovations, and industrial automation—continue to offer compelling double-digit earnings trajectories. Valuations in these sectors have normalized to more reasonable, pre-hype levels, presenting attractive entry points for patient capital. On the other side of the barbell, income-generating assets are in their best shape in years. Intermediate Treasuries yielding above 4%, investment-grade bonds at 5%, and senior private credit offering 9–11% with covenants provide a robust income cushion. These yield opportunities not only enhance portfolio stability but also preserve optionality for future equity dislocations.

Bottom line: The hard-landing narrative lacks support from current data. Disinflation is proceeding, growth remains solid albeit slower, and liquidity is intact. Credit conditions are stable, and the yield curve is de-risking. Volatility, with the VIX at 17.1, offers better entry points than months prior. Our focus remains on maintaining exposure to quality, harvesting real yields, and preserving the optionality to capitalize on opportunities when market conditions present them. The cycle may be late, but it is not breaking—our portfolio positioning reflects this understanding until a shift in data suggests otherwise.