December market update - US equities hold steady as hopes of a rate cut build

Global stock markets have been buoyed higher by renewed speculation of a December rate cut

A late recovery.

US stocks rallied towards the end of November as rising expectations of a December interest rate cut by the US Federal Reserve (Fed) offset concerns over elevated tech valuations. Markets were buoyed when the chances of a December cut increased after New York Fed President John Williams signalled that rates could start to fall in the near term.

Strong results from big tech giants helped push stocks higher, while earnings outside the Magnificent Seven also exceeded expectations. Even so, overall performance across the wider market was mixed, with indices finishing broadly where they began.

US labour data was finally released after the longest US government shutdown ended after 43 days. It showed a surprising jump in jobs in September, although unemployment reached a four-year high. Employers added 119,000 jobs, more than expected, while unemployment ticked up from 4.3% to 4.4%. However, the October jobs and inflation reports have been cancelled, and November data has been pushed back until after the Fed’s December meeting, leaving policymakers without up-to-date figures.

Reeves unveils Autumn Budget.

Chancellor Rachel Reeves unveiled £26bn of tax rises in her second Autumn Budget, including a three-year freeze on income tax thresholds and the scrapping of the two-child benefit cap. Other measures included an electric vehicle excise duty, a mansion tax on properties over £2m and changes to Cash ISA limits.

The Bank of England kept interest rates unchanged at 4%, noting that borrowing costs are likely to continue falling. UK inflation fell for the first time since March, easing from 3.8% in September to 3.6% in October. Meanwhile, unemployment rose more than expected to 5% in the three months to September, the highest in four years, while wage growth slowed to 4.8% – further fuelling expectations of a December rate cut.

China’s economy slows.

Asian stocks came under pressure after China’s slowdown worsened, weighed down by weak consumer demand and the property slump. Factory output and retail sales grew at their weakest pace in over a year, and exports contracted sharply, including a 25% drop in shipments to the US. Property investment continued to decline, shrinking 14.7% in the year to October. China’s consumer prices rose 0.2% from a year earlier, suggesting deflationary pressures may be easing.

Meanwhile, business activity in the eurozone grew steadily in November, with manufacturing losing momentum but the services sector remaining robust. Eurozone inflation eased to 2.1% in October, nearing the European Central Bank’s target. The euro area posted a €19.4bn trade surplus in September, up sharply from €1.9bn in August and well above levels recorded a year earlier.

Japan’s economy shrank by 1.8% on an annualised basis in the third quarter, the first contraction since early 2024. A drop in exports, notably car parts that have been hit by America’s tariffs, dragged down growth, but household consumption remains weak amid rising prices.

Market-moving events

US data backlog and mixed signals. Data releases in the US were limited due to a backlog following the government shutdown, which ended on 10 November. Available figures point to a ‘K-shaped’ economy: asset owners are benefiting as stocks and property prices rise, while those reliant on their salary face worsening job prospects, weighing on sentiment. In AI, earnings were solid but share price reactions were mixed, signalling possible challenges ahead. The October FOMC minutes, released on 19 November, increased speculation of a December rate cut.

UK Budget reaction. The Budget was largely pre-announced throughout the month, leaving few surprises. Overall, it was arguably less negative than feared, and Labour avoided raising basic tax rates, preserving an election pledge. UK gilts responded positively, with yields falling by approximately 0.25% over the month.

China’s momentum slows further. Official indicators pointed to China’s economy losing steam as it entered the fourth quarter. Fixed-asset investment fell 1.7% in the first 10 months, industrial output grew 4.9% in October, and retail sales rose 2.9%, marking five months of slowing growth. The housing market remained under pressure, with new home prices down 0.5% and existing homes down 0.7%.

Investment highlights

Increased fixed interest exposure. We shifted the portfolio more defensively by again reducing exposure to US larger companies and increasing exposure to the Omnis UK Gilt Fund and the Omnis Global Bond Fund. This defensive pivot was driven by concerns around stretched valuations in US equities and expectations of slowing economic growth. We would expect fixed interest to perform well at the end of the economic cycle and when equity markets come under pressure. We also rebalanced all portfolios during the period.

New tactical position. As part of our defensive portfolio shift, we added exposure to a French government bond ETF. French government bonds are trading at attractive valuations relative to historical levels due to political uncertainty. However, we believe this has somewhat stabilised, creating an attractive investment opportunity.

Remain cautiously positioned. We are overweight fixed interest and underweight equities, particularly US large companies, due to a combination of high valuations and increased concentration risk.

OMPS - Monthly Update December.pdf

Download PDF • 172KB

Agility - Monthly Update December.pdf

Download PDF • 166KB

Issued by Omnis Investments Limited. This update reflects Omnis and our investment management firms’ views at the time of writing and is subject to change. The document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with your financial adviser. Omnis is unable to provide investment advice. Every effort is made to ensure the accuracy of the information but no assurance or warranties are given. Past performance should not be considered as a guide to future performance. The Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC are authorised Investment Companies with Variable Capital. The authorised corporate director of the Omnis Managed Investments ICVC and the Omnis Portfolio Investments ICVC is Omnis Investments Limited (Registered Address: Auckland House, Lydiard Fields, Swindon SN5 8UB) which is authorised and regulated by the Financial Conduct Authority. — Approved by Omnis Investments on 1 December 2025