U.S. equities surged in late December as the S&P 500 posted its best monthly performance since 2021, driven by robust fourth-quarter earnings and renewed expectations of Federal Reserve rate cuts in early 2026. Investor sentiment shifted decisively toward optimism.
- S&P 500 rose 4.2% in December, its strongest monthly gain since August 2021
- Apple, Microsoft, and Amazon reported revenue growth exceeding 12% YoY
- 10-year Treasury yield declined to 4.02%, the lowest since June 2024
- 78% probability of a Fed rate cut in March 2026, up from 55% at December’s start
- Nasdaq Composite gained 5.4%, led by a 7.3% surge in semiconductor stocks
- Global equities in Europe and Japan rose 3.6% and 5.2%, respectively
Stock indices closed the year on a strong note, with the S&P 500 gaining 4.2% in December, marking its largest single-month gain since August 2021. The rally was fueled by a wave of positive earnings reports from major tech and consumer discretionary firms, including Apple (AAPL), Microsoft (MSFT), and Amazon (AMZN), all of which reported revenue growth above 12% year-over-year. These results reinforced confidence in corporate resilience despite persistent inflation concerns. The Dow Jones Industrial Average rose 3.1%, while the Nasdaq Composite advanced 5.4%, led by a 7.3% increase in semiconductor stocks following strong demand signals from cloud infrastructure providers. Analysts pointed to a divergence in economic data—slowing inflation in consumer services and steady job growth—as a key factor in shifting market expectations. The latest CPI report showed a 3.1% year-over-year increase, below the 3.8% peak seen in early 2024, while the unemployment rate held steady at 4.1%. Investors are pricing in a 78% probability of a 25 basis point rate cut by the Federal Reserve in March 2026, up from 55% at the start of December. This shift has lifted bond yields lower, with the 10-year Treasury yield falling to 4.02%—its lowest level since June 2024. The move has benefited growth-oriented sectors, particularly software and biotech, which saw a 9.1% and 8.7% monthly gain, respectively. The rally has broadened across asset classes, with global equities, particularly in Europe and Japan, registering gains of 3.6% and 5.2%, respectively. Investors are now focusing on the first Fed meeting of 2026, where clarity on monetary policy direction will be pivotal. Financial institutions including JPMorgan Chase (JPM) and Goldman Sachs (GS) have updated their 2026 forecasts to reflect a more dovish stance, citing inflation moderation and stable real GDP growth of 2.3% in Q4 2025.