“Don’t fight the Fed.” – Martin Zweig
Once again, the stock market indexes we follow posted mostly positive results, led by Small Cap and Midcap stocks. The only index reporting a negative month was the MSCI Emerging Markets. The Aggregate Bond index continued its slow rise higher on a combination of yield and growth. The Commodities Index remains stagnant. The US Dollar Index remains weak.
All data as of 11/28/2025, Source: Wells Fargo Investment Institute. An index is not managed and not available for direct investment. Past performance is not a guarantee of future results. [Wells Fargo Investment Institute, Inc. is a registered investment advisor and wholly-owned subsidiary of Wells Fargo Bank, N.A., a bank affiliate of Wells Fargo & Company.]
Over the past few months, we have discussed the long-term performance of the markets as well as trends that we have noticed in 2025 that may or may not carry over into 2026. If you missed these posts, or just want a refresh on our thinking, here are the links to our September, October, and November commentaries. We’ve been carefully considering what 2026 may hold, and we look forward to sharing our full outlook commentary early in the new year. This month, we want to get more granular on some key themes we are thinking of right now.
Federal Reserve December Rate Decision
By the time you read this, we anticipate that the Federal Reserve will have taken the expected step of lowering short‑term interest rates by another quarter of a percent (25 basis points), bringing the federal funds rate to the 3.5–3.75% range. While this move aligns with market expectations, divisions within the committee and gaps in the data following October’s government shutdown have made the decision more contentious than it would be under normal circumstances.
A move toward lower, short-term borrowing costs is, in our opinion, bullish. If, however, the Fed holds rates where they are, Chairman Powell’s tone in his post-announcement statement and the dot plot will likely determine the direction of the stock market. Federal Reserve monetary policy is a powerful force that can influence the overall direction of the financial markets and the economy.
The Santa Claus Rally
The last five trading days of December and the first two days of January are known as the timeframe during which the Santa Claus rally can happen. Contributing to this seasonal pattern are generally lighter institutional volume, year-end bonuses flowing into the markets, and fund managers adding winners to their portfolios as the year ends. Strong, but not guaranteed, in our experience, January can be volatile if the Santa Claus Rally doesn’t appear.
We anticipate a year‑end rally, with the S&P 500 likely finishing at or near record highs. Market sentiment remains strong, and the Federal Reserve’s likely easing measures provide an additional tailwind. Overall, investors continue to show confidence as we close out the year.
Sector Rotation Happens
The stock market comprises individual stocks grouped into sectors. Over the past few years, the returns of the S&P 500 have been dominated by the technology and communications sectors. Both of these sectors have been heavily involved with AI. A handful of companies are hyperscalers, while many others are involved in the infrastructure buildout necessary for AI to succeed in producing the productive gains Corporate America is expecting from the technology.
We cannot deny the powerful trend for many of these companies and the respective sectors. Investing, however, is not a backward-looking endeavor. Where you want to invest today is not always the investments that have performed well in the most recent past (which also tend to be the investment ideas you hear about in the media). In our experience, keeping an eye on the quiet sectors is as important as following the actions of the current market leaders.
Currently, we are observing two areas of the market that have started to perform well – the healthcare sector and the banking stocks. Chart #1 illustrates the solid breakout of the healthcare index around the beginning of October. Chart #2 shows the more gradual rise of the KWB Bank Index and a move above recent price consolidation. As always, chart actions provide no guarantees of future returns.
Chart #1: www.stockcharts.com Data 03/18/2025 – 12/08/2025 as of 12/08/2025. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week
Chart #2: www.stockcharts.com Data 03/18/2025 – 12/08/2025 as of 12/08/2025. An index is not managed and not available for direct investment. MA 13 = 13-week moving average MA 40= 40-week
Year-End Financial Moves
As 2025 draws to a close, markets are balancing optimism with caution. A possible rate cut by the Federal Reserve could fuel a year‑end rally, yet inflation and labor trends remind us that discipline remains essential. December is not only a time to reflect on the year’s economic shifts but also an opportunity to take proactive steps that can strengthen investment plans before the calendar turns. From tax strategies to portfolio adjustments, thoughtful year‑end moves can help position you—and your family—for resilience and confidence heading into 2026.
- In taxable investment accounts, we suggest reviewing your realized gains/losses for tax-loss harvesting opportunities.
- Make charitable donations before December 31. This can be in the form of cash or appreciated securities.
- Review your asset allocation and rebalance portfolios to align with your risk tolerance and financial goals.
- Check your beneficiary designations on retirement accounts and insurance policies.
- Review your estate planning documents (wills, trusts, powers of attorney) to make sure they remain aligned with your desires.
- Consider gifting to children/grandchildren.
- Review IRA, ROTH IRA, and 401k contribution levels and adjust your contribution level for 2026.
Final Thoughts
As we wrap up another year, we want to express our sincere gratitude to you—our clients, partners, and readers—for your trust, dedication, and continued engagement with the services we provide. Your commitment to thoughtful planning and your willingness to stay informed through this newsletter inspire us to deliver the highest level of guidance and care. We deeply appreciate the opportunity to walk alongside you in building confident financial futures, and we look forward to serving you with the same passion and purpose in the year ahead.
Here’s to a prosperous, healthy, and fulfilling 2026 together.
As always, we’re here to help you navigate the path ahead—whether it’s updating your plan, rebalancing your portfolio, or thinking through the next chapter of your financial journey. If you have questions or want to explore your options, don’t hesitate to reach out.
If you would like to discuss your current strategy, or how to build such a strategy, Contact Our Team Of Financial Advisors Today!
On behalf of Magellan Financial, we would like to thank you for taking the time out of your busy day to take in our thoughts and opinions. If you found this helpful, please forward it to others. If you have any questions on the materials presented, would like to be added to our email list, or would like our help with your investments, we can be contacted at 610-437-5650 or via email.
Wells Fargo Advisors Financial Network does not provide legal or tax advice.
Wells Fargo Advisors Financial Network did not assist in the preparation of this report, and its accuracy and completeness are not guaranteed. The opinions expressed in this report are those of the author(s) and are not necessarily those of Wells Fargo Advisors Financial Network or its affiliates. The material has been prepared or is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Additional information is available upon request.
Asset allocation and diversification are investment methods used to help manage risk. They do not guarantee investment returns or eliminate risk of loss including in a declining market.All investing involves risks including the possible loss of principal invested. Past performance is not a guarantee of future results.
Index returns are not fund returns. An index is unmanaged and not available for investment.
Dow Jones Industrial Average: The Dow Jones Industrial Average is a price-weighted index of 30 “blue-chip” industrial U.S. stocks.
S&P 500 Index: The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market value weighted index with each stock’s weight in the Index proportionate to its market value.
S&P Midcap 400 Index: The S&P Midcap 400 Index is a capitalization-weighted index measuring the performance of the mid-range sector of the U.S. stock market, and represents approximately 7% of the total market value of U.S. equities. Companies in the Index fall between the S&P 500 Index and the S&P SmallCap 600 Index in size: between $1-4 billion.
S&P Small-Cap 600 Index: The S&P SmallCap 600 Index consists of 600 domestic stocks chosen for market size, liquidity (bid-asked spread, ownership, share turnover and number of no trade days) and industry group representation. It is a market value-weighted index (stock price times the number of shares outstanding), with each stock’s weight in the index proportionate to its market value.
MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI.
MSCI World Index: The MSCI World Index is a free float-adjusted market capitalization index that is designed to measure global developed market equity performance.
MSCI EAFE® Index: The MSCI EAFE Index is designed to represent the performance of large and mid-cap securities across 21 developed markets, including countries in Europe, Australasia and the Far East, excluding the U.S. and Canada.
MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets.
The CRB (Commodity Research Bureau) Index measures the overall direction of commodity sectors. The CRB was designed to isolate and reveal the directional movement of prices in overall commodities trades.
Bloomberg Barclays U.S. Aggregate Bond Index: Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based measure of the investment grade, US dollar-denominated, fixed-rate taxable bond market.
NASDAQ Composite Index: The NASDAQ Composite Index measures the market value of all domestic and foreign common stocks, representing a wide array of more than 5,000 companies, listed on the NASDAQ Stock Market.
Russell 2000® Index: The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents.
U.S. Dollar Index (USDX) measures the value of the U.S. dollar relative to majority of its most significant trading partners. The index is similar to other trade-weighted indexes, which also use the exchange rates from the same major currencies.
Technical analysis is only one form of analysis. Investors should also consider the merits of Fundamental and Quantitative analysis when making investment decision. Technical analysis is based on the study of historical price movements and past trend patterns. There is no assurance that these movements or trends can or will be duplicated in the future.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations.
Investing in foreign securities presents certain risks not associated with domestic investments, such as currency fluctuation, political and economic instability, and different accounting standards. This may result in greater share price volatility.
Investments in fixed-income securities are subject to market, interest rate, credit and other risks. Bond prices fluctuate inversely to changes in interest rates. Therefore, a general rise in interest rates can result in the decline of the bond’s price. Credit risk is the risk that the issuer will default on payments of interest and/or principal. The risk is heightened in lower rate bonds. If sold prior to maturity, fixed income securities are subject to market risk. All fixed income investments may be worth less than their original cost upon redemption or maturity.
Investing in commodities is not suitable for all investors. The commodities markets are considered speculative, carry substantial risks, and have experienced periods of extreme volatility. Investments in commodities may be affected by changes in overall market movements, commodity index volatility, changes in interest rates or factors affecting a particular industry or commodity. Exposure to the commodities markets may subject an investment to greater share price volatility than an investment in traditional equity or debt securities. The prices of various commodities may fluctuate based on numerous factors including changes in supply and demand relationships, weather and acts of nature, agricultural conditions, international trade conditions, fiscal monetary and exchange control programs, domestic and foreign political and economic events and policies, and changes in interest rates or sectors affecting a particular industry or commodity. Products that invest in commodities may employ more complex strategies which may expose investors to additional risks, including futures roll yield risk.
Robert I. Cahill, Partner
Rob.Cahill@wfafinet.
Jonathan D. Soden, Managing Partner
Jon.Soden@wfafinet.com
Cassandra Queen, CFP®,ChFC®, Senior Wealth Planner
Cassandra.Queen@wfafinet.com
Susan C Schupp, MBA, Senior Wealth Planner
Susan.Shupp@wfafinet.com