Multi-Asset Solutions Archives - Madison Investments

Top of Mind – Week of December 15, 2025

Not even two full weeks after the Federal Reserve (Fed) ended its balance sheet reduction campaign (quantitative tightening), it has resumed expanding its balance sheet (quantitative easing).
In addition to announcing plans for balance sheet expansion, the Fed cut the policy rate by 0.25%, as anticipated, bringing the Federal Funds Rate to a target range of 3.50% to 3.75%.
The Federal Open Market Committee (FOMC) did not include details of its quantitative easing plans in its official statement; instead, it announced them during the press conference following its meeting.
To add liquidity to the system, the FOMC will target $40 billion per month in purchases of Treasury Bills and Notes with Maturities of up to three years. However, they have yet to define how long they intend to continue expanding their balance sheet at this pace.
The FOMC also released its fourth and final Summary of Economic Projections (SEP) for the year, which indicated one additional interest rate cut in 2026 and one in 2027, and a significantly higher 2026 real GDP projection of 2.3% from 1.8% in September’s SEP.

The Federal Open Markets Committee (FOMC) meets for its last meeting of the year on Wednesday, where it is widely anticipated that it will cut the policy rate by an additional 0.25%.
With an additional interest rate cut on Wednesday, the policy rate will stand a full 1.75% below where it was 15 months ago, when the FOMC began easing monetary policy in September of 2024 with a larger-than-usual 0.50% reduction.
In addition to a highly anticipated interest rate cut, the FOMC will also publish its fourth and final Series of Economic Projections (SEP), or dot-plot, for the year. Many will be looking to see how many interest rate cuts the current members of the FOMC believe will be necessary in 2026.
We would caution drawing too much of a conclusion from this final SEP report, as there will be a new Fed Chair in the second half of next year, as current Fed Chair Jerome Powell’s term concludes in May.
Fewer cuts penciled in for this week’s SEP would likely lead to temporary volatility in the markets; however, the SEP report to watch is scheduled to come out in June of 2026 under the new Fed Chair.

November was shaping up to be an ominously weak month for equity investors, as up until last week it would have been the weakest November return for the S&P 500 since 2008, and potentially the first negative month for the flagship index since April of this year.
Equity markets rallied hard through the Thanksgiving holiday-shortened week as interest rate cut expectations for December moved from sub-30% the previous week to above 80% on Friday following Thanksgiving, amid dovish commentary from various members of the Federal Reserve.
This renewed dovish enthusiasm helped propel the S&P 500 from a -5% pullback through the first three weeks of the month to ultimately end the month within 1% of its all-time high and extend its impressive run to seven consecutive months of positive returns.
With members of the Federal Open Market Committee (FOMC) having entered their media blackout period ahead of next week’s meeting, markets will be focused on this week’s heavy calendar of economic data releases, including ISM Manufacturing and Services, Personal Consumption Expenditures (PCE), and Consumer Credit reports.

Equity markets came under pressure last week, with the S&P 500 posting its first pullback of -5% since April of this year.
This volatility struck despite Nvidia, the largest company in the world, reporting strong operating results for its most recent quarter, with revenue and earnings both beating analyst expectations.
The delayed establishment employment report failed to provide clear enough evidence to raise the probability of a December interest rate cut by the Federal Reserve (Fed). The unemployment rate ticked higher, but the number of jobs added in September came in above expectations, while the total number of jobs added in July and August were both revised lower.
While there isn’t much labor market or inflation data scheduled for release between now and the Fed’s December meeting (with the October labor market report cancelled and the November report delayed), we continue to believe the Fed will cut interest rates in December.
A “pause” by the Fed would be met with increased volatility across asset classes in the short-term; however, we continue to believe that even if the Fed were to “pause”, short-term interest rates will be lower next year, regardless of their final decision in December.

The longest Federal Government shutdown on record ended last week after 43 days, as an agreement was struck in Washington to fund the government until the end of January 2026.
Due to the shutdown, establishment data reports, such as those on employment and inflation, have been delayed.
With the government resuming operations, some of the data that would have been reported is set to be released this week, starting with the Bureau of Labor Statistics (BLS) September job market report, initially scheduled for October 3rd and now set for this Thursday.
Given the duration of this government shutdown, there is growing uncertainty not only about when, but also if the BLS will release the labor market and inflation data for October.
Amid data uncertainty, the tone of many Federal Open Market Committee (FOMC) members has become more hawkish, leading to a drop in market expectations for a December rate cut.
Should Thursday’s labor market report indicate that the employment market has softened further, markets would likely view this bad news as good news, as the probability of the Fed cutting interest rates in December would move higher.

The third-quarter earnings season is drawing to a close, with 91% of S&P 500 companies having reported results.
The blended revenue growth rate (combining actual numbers from the 91% that have reported and the estimates of the remaining 9% yet to report) for the third quarter stands at +8.3%, continuing the S&P 500’s impressive run of 20 consecutive quarters of positive revenue growth. Encouragingly, revenue growth has been broad-based, with all 11 sectors posting year-over-year gains.
Earnings have been strong with 82% of companies reporting earnings above estimates, with last week’s figures pushing the blended earnings per share (EPS) growth rate to +13.1% for the third quarter, compared to the third quarter of last year. Results have been much higher than the estimated +7.9% EPS growth rate that was penciled in for the quarter on 9/30/2025.
While the index has certainly continued to benefit from the impressive results of its largest constituents, where the top 10 holdings of the index currently represent roughly 40% of the index, we remain encouraged by the economic backdrop that we believe will be conducive to a broadening out of equity returns.