Summary: December wrapped up 2025 with the S&P 500 at record highs on cooling inflation and a Federal Reserve rate cut, even as mixed corporate earnings swayed investor sentiment.

In this January forecast, we review December’s key macroeconomic and microeconomic drivers – from interest rate shifts to major earnings reports – and outline three potential market scenarios (positive, neutral, negative) for the month ahead, including how the S&P 500 could respond under each.

December Macro & Micro Recap

Macroeconomic Highlights

The U.S. Federal Reserve delivered a 0.25% interest rate cut in mid-December, its third consecutive reduction, bringing the benchmark rate down to 3.5%–3.75%. This move was a response to slowing job growth and a tick up in unemployment, which Fed officials felt warranted “slightly less restrictive”policy.

Before we jump to the December forecast, let’s see what things were driving the stock market in November and then we will dive into the December forecast with 3 different scenarios on what can happen to the US stock market.

November recap – volatile but still (barely) bullish

Market action

• The S&P 500 had a choppy month: it fell about 5.7% from its October high and bottomed near 6,540 on Nov 20, before snapping back into month-end and finishing up ~0.1%, extending its winning streak to 7 straight months.

  
  

• Leadership rotated: tech/AI took a breather while healthcare and other cyclicals outperformed; the Nasdaq 100 broke its own multi-month winning streak even as the S&P 500 held up.