Market Insights Recap — Week of December 8, 2025

Text Hi, I'm Tim Gereg, Head of Capital Solutions at Texas Capital.

We just wrapped up the first week of December, and Thanksgiving already seems like a distant memory. Let's dive in. The equity markets were up slightly on the week, with the S&P back within 1% from its all-time high, less than six weeks ago. Yields across the curve ended the week higher with two-year and 10-year yields, seven and 12 basis points higher, respectively. 

We also had a lot of economic data to sift through last week, and it was a bit of a mixed bag. ISM Manufacturing came in slightly below forecast at 48.2, which is the ninth straight month in contractionary territory. ADP private payrolls data came in at -32k, the largest drop in two and a half years, now with a three-month average of -5k. One of the most closely watched measures of consumer sentiment, the University of Michigan survey, came in slightly higher than last month and ahead of forecasts, but still low from historical standards. And lastly, we finally received September's PCE numbers last week. Both Core and Headline increased the same amount as the prior month, up 0.2 and 0.3%, respectively, with both annual numbers now sitting at 2.8% year on year. 

So again, a bit of a mixed bag with some slightly positive signs like inflation not as hot as it could have been, as well as some not so positive signs, all of which leads us right up to this Wednesday, the final Fed meeting and rate decision of 2025. The markets are fully anticipating another 25 basis point reduction in the policy rate this week. But what will be much more interesting is Powell's press conference after the meeting. I expect Powell, as usual, to keep any future decisions close to the vest, possibly mentioning how the bar for future cuts will be even higher than it was this month.

In the October meeting, Powell held a similar tone, saying that a December cut was not a foregone conclusion, far from it, and stating that there was a growing chorus of FOMC participants who would prefer skipping a meeting to evaluate the effect the most recent rate cuts have had already on the economy. That said, we expect there will be at least a couple dissenters in this week's meeting. We had two in October, one for a larger cut and one to hold. And I expect the same two, if not more, to formally dissent at this meeting as well. 

We'll also get the FOMC summary of economic projections, which includes the infamous dot plot. Last quarter, the participants penciled in one more cut this year, but only 1 in 2026, 1 in '27, with a long-term rate of 3%. In addition to the dot plot, we also get a read on the FOMC's other quarterly projections of GDP, inflation and unemployment. The market is definitely not convinced of a January cut, currently pricing in less than a 30% implied probability, as two-year yields have risen over 10 basis points in the last week and a half. 

All in, the market is pricing in another two and a half to three cuts total by year-end '26, and a terminal rate of just over 3%. This is slightly more aggressive than what the Fed currently has penciled in, so we could see some of those cuts backed out, meaning higher front-end rates, if Powell delivers a hawkish tone in the press conference, or less likely, if any of the Fed's projections change materially. And just like on the way up, when the Fed hiked 525 basis points from March of '22 through July of '23, and the pace of hikes slowed as we approach the terminal rate of 550, we should also expect the pace of cuts to slow on the way down as we get closer to the Fed landing spot, regardless of whether we're another one or two or three cuts from here. 

So as we enter the final weeks of the year, we'd love to hear from you and discuss what all of this means for you and your business. Let us know how we can help.