December 21, 2025

My Thoughts on
the Market

Weekly Edition

How did the markets do?

• Stocks had a rough start to the week with tech/AI worries, but finished strong on Friday. The S&P 500 ended roughly flat while the Nasdaq managed a small gain despite earlier selloffs.
• Bonds were steady after cooler inflation news was released on Wednesday, with Treasury yields settling lower.

What headlines moved the markets?

• Tech/AI stocks fell early in the week after disappointing earnings from Oracle and Broadcom raised fresh questions about AI spending returns and valuations.
  • These pullbacks often create opportunities for patient investors who stick to a diversified strategy.
  • If/when the AI bubble bursts, it will likely be a series of quarters where companies repeatedly miss earnings estimates and investors realize that the large investments in AI aren’t paying off. This won’t happen overnight.
• Inflation data came in better than expected with November's Consumer Price Index showing annual price growth slowed to 2.7%, the lowest reading since July.
  • Lower inflation gives the Fed more flexibility with future rate decisions, which should support both stock and bond markets.
• The November Jobs Report released on Monday showed that the Unemployment Rate has risen to 4.6%, the highest since the COVID shutdowns four years ago.
  • Although we added 64,000 new jobs in November, the October report was revised down to show 105,000 in jobs lost.
  • The labor market appears to be cooling off overall, and it is becoming especially difficult for new college grads and entry level workers.

Quote of the week
“We are going to need to have some years where real compensation is higher… for people to start feeling good about the affordability issue.” - Fed Chair Jerome Powell

• While job growth resumed in November, the rising unemployment rate shows softening in the labor market, which may have influenced the Federal Reserve's cautious stance on future rate cuts.
  • The US has added approximately 76,000 new jobs per month in 2025, roughly half of the monthly average in 2024.
  • Unemployment for Gen Z workers (age 16 - 24) was 10.4% in September.
  • Keep in mind though, the report was complicated by data distortions from the government shutdown.
• Inflation is trending near 3% and wage growth is around 3.5%, meaning that most workers feel that they are just barely keeping up with expenses.
  • The trending term K Shaped Economy describes how those with savings and investments are doing well, whereas people living month to month are finding it increasingly difficult to make ends meet.
  • This could be the early signs of a looming recession, or at best drive down consumer confidence and spending.

Personal Finance: What is a Preferred Stock?
Disclaimer: taxes are complicated and unique to each individual. Consult with your advisor before making any major tax decisions. This is general educational information and not intended as financial advice.

As interest rates fall, investors are increasingly finding bonds less attractive as a source of portfolio income and are turning to preferred stocks’ high dividends instead.

• A Preferred stock is like a hybrid between a bond and regular stock. You own a share of a company, but have special rules and privileges that common stockholders don’t get.
  • Preferred stocks pay a fixed dividend whereas common stock dividends are declared quarterly and can go up/down or even not get paid at all.
    • Also, preferred stock dividends are taxed at a lower rate than ordinary dividends or interest from corporate bonds.
  • Preferred stocks tend to have a much more stable share price than common stocks. This can be a double-edged sword, because if a company does well then the common stock price will rise, however if a company does poorly then the preferred stock will maintain its value.
  • If a company goes bankrupt, then preferred stockholders are next in line to get paid out as creditors behind bondholders and ahead of regular shareholders.
  • One downside is that unlike common stocks, preferred stock does not entitle the shareholder to company voting rights.
• Who should consider investing in preferred stocks?
  • Someone looking to add stability to their portfolio and reduce the impact of stock market volatility but who isn’t interested in bonds.
  • Retirees or anyone living off of the income of their portfolio - preferred stocks often pay more income than bonds or common stock dividends.

Conclusion

• Recent tech/AI companies’ earnings are a little concerning, but not enough to burst the AI bubble yet. Much like the Dot-com bubble, it will take a series of earnings estimate misses before investors capitulate and conclude that the rally is over.
• In regard to the economy, the good news is that inflation isn’t rising however the bad news is that unemployment is. That coupled with low wage growth has led to the general feeling that life is becoming more difficult for the American worker.
• Consider preferred stocks if you are looking for investments that provide steady income at a favorable tax rate and reduce the risk in your portfolio.

Have a nice weekend!

Kevin