Market Insights Recap — Week of December 1, 2025

Hello, I'm Steve Orr, Chief Investment Officer for Texas Capital’s Private Bank. 

Dropping out, correction corrected and it's Fed time again. What do they mean for our portfolios? What should we be thinking about? 

Did the economy drop out during the government shutdown? No, it didn’t. We think the slowdown was back in the summer and mainly around hiring. Weekly jobless claims remain near cycle lows. And unemployment should stay near or just below 4.5%. Private surveys show the economy remains in first gear, not too fast and not slowing down. Now one odd divergence we're watching, though, is the difference between what consumers are doing and what they're saying. Retail sales for the holidays are off to a good start, headed toward new records. Not surprising, the early returns suggest shoppers are moving more online. And we certainly didn't have any difficulty getting into stores over the weekend. That good news is very different from surveys about consumer attitudes, sentiment, present situation, outlook, are uniformly in the gutter. Yet consumers continue to spend. So watch what they do and not what they say. 

One reason for a sour outlook is inflation. The Fed's favorite gauge, personal consumption expenditures, is going to be updated this Friday. Economists expect around 2.8%. It continues to drift towards 3% per year. Our concern in the summer was whether the economy would hold up under tariffs, wars and possible government shutdown until 2026. Looks like we're going to make it. 2026 brings us consumer stimulus from the One Big Beautiful Bill, business tax breaks and new opportunity zones in the summer. More Fed rate cuts later in the year, making monetary policy even easier. And of course, continued spending on artificial intelligence and new data centers.

Now last week’s snapback rally pulled the S&P 500 back to flat for November. Nasdaq ended up down about 1.5% for the month. So not a November to remember. December usually sees a Santa rally after the middle of the month. For Santa to appear, a rate cut on the 10th, solid jobs number on the 16th would help. So when in doubt, go back to Marty Zweig’s rules. Don't fight the Fed. Don't fight the tape. The Fed is in rate-cutting mode. Whether we need lower rates or not, Powell admits to being in a data fog at the moment. But between December and January Fed meetings, they're going to get three payroll reports, two unemployment reports and two inflation readings. 

So for the end of January, when the FOMC meets again, they're going to have a pretty clear picture of how the economy weathered the shutdown, and the tape in the short term is neutral; longer-term is in a bull market. So we can stay patient with our positions for now; ‘til next time.