The View from 30,000 Feet December 14, 2025

As we approach year-end, this week’s themes feel less like noise and more like a preview of the market environment heading into 2026. Several seemingly separate developments — in monetary policy, artificial intelligence, and global rates — are converging toward a common conclusion: markets are entering a more mature, selective phase of the cycle.

The Fed: Near Neutral, Divided on the Path

The Federal Reserve delivered a 25 basis-point cut, but the more important signal came from Chair Powell’s language. Repeated references to policy being “well positioned” made it clear the Fed believes it has moved into the neutral range.

Powell also outlined the Committee’s evolving view of its dual mandate. Inflation is increasingly seen as temporarily influenced by tariffs and largely confined to goods, with little evidence of a renewed, broad-based inflation impulse. At the same time, the labor market appears weaker beneath the surface, even as headline data remain relatively stable.

These interpretations are not universally shared within the Committee. Inflation persistence and labor-market resilience remain matters of judgment, not settled fact, which explains the visible division among policymakers.

Bottom line: The Fed believes policy is near neutral, inflation risks are contained, and labor-market weakness is understated — but the lack of consensus around these assumptions raises the bar for further cuts and leaves policy highly data-dependent.

AI: From Spending Applause to Return Scrutiny

The AI trade continued to unwind this week. Oracle and Broadcom were among the latest names to feel pressure, not because their narratives changed, but because the market’s lens changed.

What was once rewarded as aggressive capex expansion is now being evaluated through a tougher framework focused on returns on invested capital. As competition intensifies and LLM parity increases, investors are demanding clearer monetization paths rather than open-ended spending plans.

Bottom line: The AI trade is undergoing a regime shift — characterized by rising competition, a preference for capex funded by free cash flow rather than debt, and a level of accountability that has been largely absent over the past two years.

Global Rates: The End of Synchronized Easing

Beyond the U.S., central banks are converging toward neutral as well. An increasing number are signaling pauses, while some are openly discussing the possibility of future hikes. This marks the end of a synchronized global easing cycle.

When rates stop falling in unison, markets behave differently. Sector rotation becomes more pronounced, country-level differentiation matters more, and currencies regain influence over returns.

Bottom line: Markets are moving beyond an early-cycle environment where multiple expansion does most of the work. A more mid-cycle regime favors fundamentals, selectivity, and dispersion — companies increasingly need to earn higher valuations.

Looking Ahead

Taken together, this was a telling week. Policy neutrality, greater discipline in AI, and the fading tailwind of falling global rates are not isolated developments — they are the same forces we expect to define 2026.

While we still believe the year ahead can deliver solid returns, those gains are likely to be harder fought, more volatile, and far more dependent on execution than in recent years. In this environment, selectivity matters more than narratives, and fundamentals matter more than momentum.