The market digested key economic datapoints in the last two weeks of 2025. The highly anticipated third quarter US GDP estimate came in at 4.3%, the fastest pace in two years and much stronger than Bloomberg consensus expectations calling for 3.3%. The strong print was primarily driven by consumer spending, which accelerated to 3.5% versus 2.5% in Q2, along with a surge in exports as trade policy moderated. The first estimate was originally planned for 10/30/25 but was delayed to 12/23/25 due to the government shutdown.

Consumers’ willingness to spend has defied survey measures indicating a more pessimistic view. Consumer Confidence for December weakened to 89.1 versus an upwardly revised 92.9 in the previous month. The Present Situation Index deteriorated by 9.5 points to 116.8, while the Expectations Index remained steady at 70.7. Survey responses reflected continued concerns about inflation, tariffs, and the labor market.

Meanwhile on the housing front, the S&P Cotality Case Shiller Home Price Index year-over-year growth slowed to 1.3% as of October. Home prices in Los Angeles (0.1%), San Francisco (0.3%), and San Diego (-0.6%) were little changed over the past year. Chicago had the largest annual gain with growth of 5.8%, while Tampa home prices saw the largest drop of 4.2% out of the 20 cities included in the index.

The bond market saw yields drop significantly over the past year as the Federal Reserve kicked off an easing cycle with three quarter-point rate cuts in 2025 to a target federal funds rate range of 3.50 – 3.75%. The bond market is pricing in expectations for one additional quarter point cut over the next six months. The 2-year US Treasury yield dropped from 4.25% to 3.47%, the 5-year fell from 4.38% to 3.73%, and the 10-year also moved lower from 4.58% to 4.18% in 2025. The yield curve differential between the 10-year and 2-year US Treasuries bull steepened as a result of the rate cuts from +33 basis points on 12/31/24 to +71 basis points as of year end 2025.

© 2026 Chandler Asset Management, Inc. An SEC Registered Investment Adviser. Data source: Bloomberg, Federal Reserve, and ADP. This report is provided for informational purposes only and should not be construed as specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as an indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation, or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment. Fixed income investments are subject to interest rate, credit, and market risk. Interest rate risk: The value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low-rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market, in general, could decline due to economic conditions, especially during periods of rising interest rates.