THE MACRO

The Fed just hit pause on tightening.  I know it sounds dramatic, but it’s a big deal for markets heading into 2026.  The markets seem quiet, but under it all, an important pivot just happened.

Rate hikes are done. Inflation is not too active. The soft-landing story is holding.  Overall, consumer sentiment has slightly improved, but people are concerned about job security and inflation.  The cautious spending I talked about last month should continue. With all that said, Q4 GDP is expected to land at around 1.5 to 2%, with some calling for 2.5%.  This keeps recession risks contained.

The Federal Reserve stopped quantitative tightening on December 1st.  This basically means they stopped shrinking their pile of money to keep banks from running low on cash. They're not adding more money yet (that's quantitative easing), just holding steady. In the short-term, this means easier money for markets, which could be a positive sign, especially if we get another rate cut.

If the Fed starts quantitative easing (QE = adding more money) again, it will put even more cash into the economy. This will make it easier for people and businesses to borrow money and can help markets rise faster. QE can also help keep interest rates low for a longer period, which encourages spending and investing, but if done too much, it might cause prices to rise too quickly (inflation).

The good stuff is ⬇️ 

Where is the Fed Going with Interest Rates

The Fed has already cut twice in 2025. Markets have priced in one last cut this year at the December 10-11 meeting, likely bringing rates down another .25% to around 3.50-3.75%. While much is already priced in, don’t be surprised if we close 2025 with a year-end rally driving the S&P to near 7200-7500 levels

The rate path seems to no longer be in question; it’s the reaction that matters. If the final cut lands clean and inflation trends stay soft, markets may interpret it as a successful rare soft landing. That’s fuel for risk assets, especially if QE starts back up. I’m not sure the setup heading into 2026 is explosive, but I definitely wouldn’t call it broken.

1. Global Trade Realignment
More production is moving closer to home. Mexico has overtaken China as the top U.S. trading partner. Nearshoring is reshaping industrial and logistics investment.

2. Labor Constraints
Wage growth is slowing, but labor supply isn’t rebounding. Aging demographics and low participation are long-term limits on the pace of future economic growth.  It also raises the floor on inflation.

3. Energy Grid Bottlenecks
Clean energy projects are growing fast, but the grid can’t handle it. Power isn’t always available where or when it’s needed, making electricity more expensive and less reliable. That’s already hitting margins for data centers, manufacturing, and EV production, and it’s just getting started

4. War Risks are Live Again
Russia–Ukraine is still unresolved. Venezuela could escalate. Neither conflict is priced into markets, but both could disrupt energy flows (and markets) or regional stability quickly.

Equities:
Rate cuts support valuations, but only if earnings hold. High-margin, low-debt names still have room. Over-levered growth stocks face a tougher setup.

Credit:
Borrowing costs are still high, but defaults haven’t spiked yet. Lenders and investors are acting like the economy will stay steady. If growth slows or rates stay high longer than expected, weaker companies could start to break.

Housing:
Stabilizing, not surging. Lower mortgage rates help demand, but affordability remains stretched. Good for volume recovery, not price spikes.

Long-term Investor Positioning

The market isn’t rewarding entire sectors right now. It’s rewarding specific business models, balance sheets, or pricing dynamics within those sectors. When Growth slows, balance sheets and pricing power matter more than ever. 

Don't chase noise.  Don’t chase sectors.  Don’t buy the whole basket and hope. Be selective - no trends, no themes, no momentum. Focus on great businesses with real durability, clean capital structures, and the ability to protect margins when things get tight.

Buy and hold the right businesses.  Patience and selectivity will do the heavy lifting.