Monthly Market Report – December 2025

The Federal Reserve’s interest rate cut decision, the potential replacement of Powell, and the performance of U.S. technology stocks once again became the main focus of markets in December. Equity markets showed a mixed performance, with the U.S. closing almost flat, while Europe posted significant gains. Meanwhile, bond markets behaved similarly across regions, with yields rising along most of the curve.

The Federal Reserve cut interest rates by 25 basis points for the third time in 2025, bringing the benchmark rate to 3.75%. The decision was approved by a large majority, which was positively received by the market. In his subsequent press conference, Powell once again highlighted the wide range of views regarding future policy moves in 2026. While some members anticipate rate hikes, others support two additional rate cuts. If current voting positions are maintained, the Fed would cut rates once next year.

Additionally, the U.S. central bank announced a short-term bond purchase program, amounting to USD 40 billion per month, aimed at easing liquidity tensions observed in money markets in recent months.

Regarding the Fed, the name most frequently mentioned in December as a potential replacement for Powell was Kevin Hassett. Strongly aligned with Trump and supportive of more aggressive rate cuts, he is not a market-friendly candidate and has been one of the factors pushing U.S. bond yields higher during the month. Investors fear a loss of independence at the Fed, which could lead to challenges in controlling inflation and the broader economy. The second candidate is Kevin Warsh, who, despite his alignment with the Republican Party, has extensive experience in financial markets and at the Fed itself, making him more acceptable to investors.

U.S. bonds were negatively impacted by these developments. Only the favorable U.S. inflation data temporarily slowed the rise in yields. Headline U.S. CPI came in well below expectations at +2.7%, down from +3.0%, while core inflation followed the same trend, declining to +2.6%, its lowest level since March 2021.

Global fixed income markets were also pressured by the interest rate hike in Japan and by comments from ECB members, which made clear that the European institution has fully ended its rate-cutting cycle.

  • Japan raised its policy rate by 25 basis points to 0.75%, the highest level in 30 years. Subsequent comments suggested that further rate hikes remain possible, generating additional pressure on the Japanese yield curve.
  • The ECB kept rates unchanged at 2.0%, but remarks from several members were poorly received by the market. Schnabel, among others, stated that the next move could be a rate hike, leading to higher yields across the euro curve, particularly at the long end. Long-term French yields reached their highest levels since 2009.

In equity markets, U.S. indices were weighed down by ongoing uncertainty surrounding artificial intelligence. Broadcom and Oracle reported earnings that fell short of expectations, triggering double-digit declines and spillover effects across the sector. Oracle was further impacted by news that one of its key financiers will not participate in its upcoming project.

As a result, the S&P 500 ended the month virtually flat, down -0.05%. Despite the weak performance of technology stocks, there was a rotation toward more cyclical sectors, particularly financials, allowing the Dow Jones to post a +0.73% monthly gain.

European equity indices continued their upward trend from recent months and outperformed their U.S. counterparts. The Euro Stoxx 50 rose +2.17% in December, driven mainly by the banking sector.

Finally, in the foreign exchange market, the U.S. dollar weakened against the euro following confirmation of the Fed’s rate cut. The EUR/USD pair rose +1.28% during the month, closing the year at 1.1746. Overall, the dollar ended 2025 down -11.85% versus the euro, although it remains within the sideways trading range established throughout the second half of the year., aunque se mantiene dentro del canal lateral formado durante todo el segundo semestre.

Informe Mensual de Mercados - Diciembre 2025Descarga

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