Introduction to the Current Market Trends
The current market trends are complex and multifaceted. To understand them, we need to analyze various factors, including labor market trends, inflation data, interest rates, and the overall economy.
Labor Market Trends
The labor market in the US is experiencing a slowdown. The latest nonfarm payroll report revealed that the US has added an average of 10k jobs per month over the last 4 months, the fewest since the 2020 recession. The total number of jobs in the US increased by 0.6% over the past year, the slowest growth rate since March 2021. Many are arguing that this time is different, pointing to lower immigration levels as the primary factor leading to the rapid decline in jobs. However, there is still much debate about the other half of the decline, with Fed Chairman Jerome Powell saying recently that the US has been overstating jobs by up to 60k per month.
Evidence of a Cooling Labor Market
Evidence pointing to a cooling labor market includes:
- The US Unemployment Rate moving up to 4.6% in November, the highest level since September 2021.
- There are now 160k more Unemployed Persons than Job Openings in the US.
- The percentage of US workers quitting their jobs has moved down to 1.8%, the lowest since May 2020.
However, a cooling labor market is not the same thing as a recessionary labor market. In a cooling labor market, companies slow their rates of hiring, whereas in a recessionary labor market, companies actively reduce their workforce due to declines in demand.
Inflation Data
The latest CPI report revealed that inflation moved down to 2.7% in November, well below consensus estimates for a 3.1% increase. However, the data released by the BLS was missing many important numbers due to the government shutdown, leading many to question how reliable the 2.7% figure actually is. The decline in Shelter CPI inflation from 3.6% YoY in September to 3.0% YoY in November was the main factor in bringing down overall CPI. But the question is whether this is a true reading or a downward bias due to the shutdown.
Interest Rates and the Economy
As expected, the Fed cut interest rates once again in December, bringing the Fed Funds Rate down to a new range of 3.50-3.75%. The Fed has officially flipped the switch, ending QT and starting QE. In their latest meeting, the Fed announced $40 billion per month in Treasury Bill purchases to start. This latest announcement is paving the way for more bond buying in 2026 on the long end of the curve.
The Impact of Interest Rates on the Economy
The decision to cut interest rates will have a significant impact on the economy. With the Fed cutting short-term rates by 175 bps since September 2024, long-term bond yields have risen. The 30-year Treasury yield was below 4% when the Fed started cutting rates and is now above 4.8%. This means that the market is betting on higher long-term inflation.
The Comeback of the US Economy
The US economy showed a big comeback in 2025. After a -0.6% downturn in Q1, real GDP snapped back with a +3.8% reading in Q2 and +4.3% in Q3. The Q3 number was over 1% higher than consensus estimates. The US economic expansion is now 65 months in duration and will likely show further growth in Q4.
Volatility in the Markets
Volatility felt high in 2025, but in reality, it wasn’t extreme at all. The $VIX has averaged 19 this year, which is slightly below its historical norm. Back in April during the “Tariff Tantrum” the Volatility Index ($VIX) briefly crossed above 60. Today, it’s below 14, its lowest level of the year.
Interesting Stats
Some interesting stats include:
- Gas Prices in the US have moved down to $2.89 per gallon, their lowest level in over 4 years.
- The US Trade Deficit actually widened 17% in the first 9 months of this year.
- The US collected a record $246 billion in customs duties over the last 12 months.
- In the first 2 months of the 2026 Fiscal Year, the Federal Government took in $740 billion and spent $1.2 trillion.
Conclusion
In conclusion, the current market trends are complex and multifaceted. The labor market is cooling, inflation data is distorted, interest rates are being cut, and the economy is experiencing a comeback. Volatility in the markets has been low, and there are many interesting stats that provide insight into the current state of the economy. As we move forward, it will be important to continue to monitor these trends and adjust our strategies accordingly. By staying informed and up-to-date, we can make better decisions and navigate the complexities of the market.
