Key Takeaways
- Global yields have ticked higher, pressuring bonds, while metals and crypto show ongoing and renewed strength, respectively.
- Equities stay resilient as volatility fades and the 10-year holds below one key danger level.
- Seasonal tailwinds may lift stocks into year-end, but 2026 midterm-year risks loom.
It could be a December to remember for the . Amid rising global interest rates, the Fed Funds futures market reveals that the next quarter-point cut may not come until June. That means, perhaps, that Jay Powell executed his final policy-rate change this month.
A Fractured Fed: The New Normal?
It’s difficult to recall a more dramatic period for domestic monetary policy (outside of crises). Dissenting votes used to be rare and one-offs, but they are now commonplace among the 12 FOMC voting members.
Right now, a Trump loyalist may indeed be influencing decisions among the independent Board. Looking back, swept under the rug was former Fed official Adriana Kugler, who allegedly stepped down for violating trading rules. Going forward, a politically motivated Fed could be the new normal if Kevin Hassett, the current Trump administration NEC director, assumes the chairmanship.
Winter Trend: Global Bond Markets Heat Up
And that’s all that’s happening at home. Overseas, interest rates are now at their highest since 2009. Benchmark yields in Germany, the UK, Japan, and Australia have all moved sharply upward. In fact, traders now price in a higher chance of ECB rate hikes, not cuts.
It’s a reminder that bond-market cycles are often very long in duration, marked by years of consolidation before significant impulses in the trend of a larger degree (Elliott Wave and Dow Theory savants can appreciate that).
The Year in Bonds. The PerfChart of AGG and IAGG shows both posting decent mid-single-digit returns. Chart source: StockCharts.com.
Corporate Holiday-Stress Rising
Moreover, rising global rates are not merely a sovereign concern. Investment-grade corporates obviously don’t take well to a fumbling fixed-income market. CEOs and CFOs managing capital-allocation plans are probably feeling some extra holiday stress at the moment.
Consider that, according to The Wall Street Journal, big-ticket, debt-fueled M&A deals (valued at $10 billion or more) reached a record level as we button up 2025. And corporate dealmaking is part of the 2026 bull-market thesis.
Bond vigilantes may have other ideas… and they could have the AI trade in their crosshairs.
Zooming out, precious metals could be the cross-asset tell. hovers near $4,200 per troy ounce; traded above $61/oz for the first time, and and may have found their bearings. Commodities writ large are on many diversified investors’ Christmas wish lists.
Cryptocurrencies, too, have bounced off their mid-November lows—the debasement trade has crept back into the macro picture.
YTD Performance of Silver and Gold. Precious metals have performed well, with silver up 110%, and gold up 60%. Chart source: StockCharts.com.
From an intermarket perspective, spiky interest rates and rising commodity prices often spell volatility in equities. But we aren’t seeing that with much vigor. Yes, the (VIX) scaled 17 by the middle of this week, but volatility has seemed to fall as fast as it rises lately. To that point, the printed a soft 13.7 ahead of the Fed decision — not much holiday stress there.
So bonds are on the offer, metals are hot, crypto bearishness may be waning, and volatility is in check. Given that backdrop, the ($USD) has remained flat since the middle of the second quarter.
U.S. Dollar Index Relatively Flat. The dollar has stabilized between 96 and 100 since May. Chart source: StockCharts.com.
The 10-Year Yield: The Market’s North Star?
My take? So long as the stays below 4.5% or so, the equity market should be in good stead. That mid-4s range has been the make-or-break spot for stocks, and we are still 30 basis points from the danger zone.
If you zoom out, you’ll see that Treasurys have been range-bound with falling volatility — that’s a constructive setup for those same CEOs and CFOs eyeing daily cost-of-capital changes. Thus, maybe it’s not surprising that leveraged M&A is in vogue.
10-Year Treasury Yield Rangebound. The danger zone for the 10-year yield is above 4.5%. Chart source: StockCharts.com.
’Tis the Seasonality
Let’s also consider seasonality. The back half of December is the fourth-best two-week return stretch of the year, according to Goldman Sachs. Upswings often start about now and last through early January (the Santa Claus Rally period is December 24–January 5 this go-round).
Could fixed income be the foundation for a wall of worry that sends the major equity indexes to new highs? I think so. I’m particularly encouraged by recent alpha among cyclicals, like transports, retail stocks, and small caps.
A Dicey January Ahead?
All bets are off come early next month, though. Over the past 20 years, January–February has not been particularly bullish, averaging gains of 0.3% and 0.2%, respectively. Furthermore, midterm election years are historically dicey: the average return is less than 5%, with an enhanced median drawdown in data going back to 1950.
For 2026, if the “reflation” trade turns into an inflation redux, the year could rekindle 2022 vibes.
Winter Blues. S&P 500 soft Jan–Feb returns since 2006. Chart source: StockCharts.com.
The Jobs Market: The Key Swing Factor
The 2026 upside case may hinge on the U.S. jobs market. Earlier this week, we received an encouraging report that showed net hiring for the four weeks ending November 22, bucking the negative trend since early October. If sell-side strategists are correct, such as those at Goldman Sachs who see monthly payrolls rising at an improved +100k pace by Q2 2026, job creation, along with a pickup in real wages for the bottom half of income earners, could break this sentiment malaise.
Among businesses, lower taxes (full expensing of investment projects and R&D) and deregulation could finally take the above 50. Animal spirits at the household and business levels are an underappreciated upside risk, in my view.
The Bottom Line
Call this my 2026 outlook piece (since everyone is publishing them now). The Fed’s final quarter-point cut of the year comes as global bond markets face selling pressure. The macro feels like it’s teetering between reflation and inflation (the former being bullish, the latter being bearish).
Stocks remain resilient, however, and diversified investors have enjoyed their best annual gains since 2021 with equities, bonds, and commodities all sporting festive returns with year-end on the doorstep.
Disclaimer: This blog is for educational purposes only and should not be construed as financial advice. The ideas and strategies should never be used without first assessing your own personal and financial situation, or without consulting a financial professional.