- The U.S. economy remained resilient in Q3 2025, with robust consumer spending, solid business investment, and improving net exports aided by a weaker dollar driving the most recent GDPNow projection of 3.9% real U.S. GDP growth. Heading into Q4, the outlook is more cautious as the 43-day federal government shutdown disrupted the flow of key economic data and caused an estimated $11B hit to the U.S. economy.
- Optimism is building for 2026, however, with tax cuts and other pro-growth regulatory changes included in President Trump’s “One Big Beautiful Bill” expected to provide a significant tailwind for economic growth.
- According to the delayed report, core PCE inflation cooled slightly in September, rising 2.8% year-over-year, but continues to pressure household budgets as elevated living costs have led to more cautious consumer sentiment and softened plans for major purchases.
- According to ADP’s payroll report, private employers shed 32,000 jobs in November, the most since early 2023, adding to concerns about pronounced weakening in the labor market. The report also showed wage growth cooled, with workers who changed jobs seeing the lowest average increase in pay since February 2021.
- With the unemployment rate sitting at 4.4%, the labor market has been a growing concern for the FOMC, who will need to make a decision on rates by the end of its December meeting (12/10) before the next Bureau of Labor Statistics jobs report, which includes the public sector and presents a more comprehensive picture of the labor market, is released on 12/16.
- Rate-cut expectations swung sharply in November, with the market implied probability of a 25bp cut sitting at ~30% mid-month before surging to ~86% by month-end, driven by the weak ADP payroll report, major Wall Street Banks reversing their forecasts, and dovish comments from some FOMC members.
- Business investment has shown signs of both expansion and caution, depending on the sector. AI-driven capital expenditures are accelerating, but overall investment has been tempered by higher borrowing costs and uncertainty around future demand as companies navigate shifting supply chains, tariffs, and evolving consumer preferences.
- Consumer confidence weakened sharply in November, with sentiment gauges falling to near-record lows, as high prices and shrinking incomes have made Americans more cautious, leading to slowing retail sales growth after several months of robust spending.
- U.S. equities saw heightened volatility but were supported by resilient earnings and hope for monetary policy easing in the near-term. The S&P 500 posted a modest gain in November, while the Russell 2000 outperformed late in the month on rising expectations for a Fed rate cut which could have an outsized impact on small cap companies with typically higher borrowing costs.
- International equities continue to lead U.S. stocks year-to-date, partly due to a weaker U.S. dollar, boosting returns for non-U.S. assets and a rotation away from highly concentrated U.S. benchmarks.
- Treasury yields declined across the curve in November, reflecting improved risk sentiment and expectations for potential Federal Reserve policy adjustments. Credit spreads tightened, indicating continued confidence in corporate credit quality and stable funding conditions for high-grade borrowers.
- After declining steadily for most of 2025, the U.S. dollar rebounded slightly in November as economic resilience and shifting rate expectations improved sentiment. The strength of the greenback remains a key variable influencing trade, corporate earnings, and capital flows, making its forward path a focal point for strategists and their outlook for 2026.
