Key Wealth Investment Brief

Key Takeaways:

The Federal Reserve (Fed) is expected to cut the fed funds rate another 25 basis points (bps) on Wednesday, December 10, 2025.

The current fed funds rate target range is 3.75% - 4.00%, and another cut would bring the top end of the target range below 4.00%. Betting market Kalshi and Futures Markets both predict a cut of 25 bps (0.25%) in December, prior to a Fed pause in January.

The impetus for another interest rate cut is a cooling but not collapsing labor market. Indicators such as initial unemployment claims, ADP private employment, and Challenger Grey job cuts all paint the picture of a “low to hire, low to fire” labor market, according to data from Evercore ISI. Delayed traditional labor market data will be released next week (recent data has been delayed due to the government shutdown) and should illustrate further employment weakness due to layoffs in the government sector.

On the other hand, typically, in a rate cutting cycle, 10-year Treasury yields drop, according to Bianco Research, citing the 1989, 2000, 2007 and 2019 rate cutting cycles. The current cutting cycle began in September 2024; and since that time, 10-year yields have risen, suggesting market participants remain worried about inflation or perhaps concerns that the Fed may be cutting prematurely.

Declaring a stock market bubble is a difficult exercise, at best.

From December 1994 to December 1996, the S&P 500 rose 69% and technology stocks rose approximately 103%. In December 1996, then Fed Chair Alan Greenspan made his famous “irrational exuberance” speech regarding “unduly escalated asset values” (he was worried about a bubble in stock prices).

In the period after Greenspan’s speech, from December 1996 to March 2000 (the peak of the tech bubble), the S&P 500 rose another 112%, and technology stocks rose an astounding 435%, before a peak and sharp fall.

From March 2000 to September 2002, the S&P 500 fell 44% and technology stocks fell 81%. Other sectors, like emerging markets and small cap value stocks, fared much better in the downturn and, in particular, bond prices rose offering some support as well. One lesson: bubbles can be tough to spot, and staying diversified remains paramount.

We don’t believe the current situation is a bubble (yet). Current market valuations are below prior bubble peaks, and underlying fundamentals remain strong. Investor sentiment is not yet significantly extended, and leverage remains moderate for most players involved. Finally, “new paradigm” thinking has not yet become mainstream.

The residential housing market is softening after very sharp post-COVID price appreciation. Multi-family (apartment) supply is set to drop sharply.

Despite recent weakness, the median home has risen more than 50% in price (7.5% annualized) since 2020, according to data from Case Shiller and Redfin. Housing comprises a substantial portion of the average person’s net worth. The housing market impacts economic growth, household wealth, consumer spending and employment.

Nationally, the supply of homes on the market is up 15% year-over-year, and the number of buyers applying for a home mortgage is up approximately 31% from the same period last year, also according to data from Case Shiller and Redfin. New listings are up 0.9% year-over-year, while pending sales are down 2.6%; it is taking slightly longer for the median home to sell.

Many new apartments were delivered in recent years, with supply peaking in 2024 according to CoStar. This supply has put downward pressure on rents. The national median rent of $1,367 per month has fallen approximately 5.2% from its 2022 peak, according to CoStar. New apartment supply is expected to fall sharply in the coming years.

Bottom line – how to invest now.

Key Wealth’s 2026 Economic and Market Outlook National Client Call was held on Wednesday, December 3, 2025.

Key Wealth Institute National Client Call - Managing Wealth in an Age of Disruption and Change - Recording - (December 3, 2025)

We discussed Three Forces of Disruption (concurrent and interconnected):

1. The rise of nationalism and “state capitalism," and the related retreat from globalization.
2. Advancements in artificial intelligence (AI): the promises, the challenges and the unknowns.
3. The democratization of private markets and changes in market structure.

Key Wealth’s investment philosophy is premised on committing capital to areas that are starved for funds and avoiding areas where capital is abundant. AI remains the dominant theme in the economy. As money pours into AI-themed investments, we continue to recommend a diversified approach.

Since Labor Day, we have been advising investors to revisit equity exposures and rebalance where appropriate. This view still holds as the labor market continues to cool, AI exuberance heats up, and credit markets exhibit some shakiness. Widely used indices remain concentrated, potentially leaving investors over-exposed to concentration risk. Diversification remains an attractive strategy, in our view.

Equity Takeaways:

Stocks were quiet in early Monday trading. The S&P 500 fell approximately 0.1%, to 6862, while small caps rose approximately 0.1%. International shares were also generally unchanged.

November was a choppy, flat month. The first week of December saw the S&P 500 rally back towards its all-time high. Earnings growth remains very strong – a fundamental tailwind for stock prices that is expected to continue into 2026.

Encouragingly, participation has broadened outside of the technology sector, with other sectors picking up the baton. The S&P 500 ex-information technology index broke out to a new interim high last week. A broadening market is a healthy sign.

Quality stocks (generally companies with strong balance sheets and consistent earnings) have significantly underperformed riskier, higher-beta stocks in 2025. We believe quality companies tend to outperform over a full cycle, and that quality stocks are attractive at current levels.

The dividend yield of the S&P 500 continued to fall in 2025, to near historic lows. The strong performance and increasing market share of high growth, low-to-no yielding technology companies has driven the yield lower. Income-oriented investors should look elsewhere.

Fixed-Income Takeaways:

Investors are expecting a “hawkish cut” of 25 basis points (0.25%) this week. The Fed remains concerned about inflation, and market participants will be parsing their language closely for clues regarding the Fed’s 2026 outlook.

Last week, 10-year Treasury yields rose as investors remain concerned about the impact of rate cuts on future inflation. Prior support for the 10-year yield has been between 4.15% and 4.20%. Buyers have stepped in at those levels over the past few months.

In early Monday trading, Treasury yields were up another 2 - 4 bps across the curve. In summary, 2-year Treasuries were yielding 3.60%, 5-year Treasuries 3.77%, 10-year Treasuries 4.18%, and 30-year Treasuries 4.83%.

Over the intermediate term, market participants are expecting 75 bps to 100 bps of cuts to the fed funds rate by the end of 2026, which would bring short-term rates down to approximately 3.00%. The current fed funds rate is the target range of 3.75% to 4.00%.

Credit spreads tightened modestly last week. Spreads had drifted slightly wider since the start of November, but on an absolute basis, spreads remain narrow relative to historic levels. Continued inflows into corporate credit have helped keep a lid on spreads.

Key Takeaways:

How will the economy perform next year?

We believe investors should watch what consumers do, not what they say. Consumer spending remains solid as rising retirement assets and higher home prices are lifting consumer net worth, creating a wealth effect. Consumer confidence is weakening, but overall spending and net worth remain robust, according to data from Evercore ISI.

Artificial intelligence (AI)-related spending, including investment in data centers and infrastructure, has exploded in recent years and continues to support economic growth. Much of this new capital spending has been financed with debt, in contrast with prior years, when most AI spending was funded from cash flow. Debt-funded spending needs to be managed more carefully than spending funded from cash flow, but debt is not always a less favorable funding structure.

Operational use of AI is still modest, but paid subscriptions are higher, according to Ramp, citing Census Bureau data. In other words, companies are exploring AI tools even if they’re not integrated into their processes yet.

Conversely, 50% of Americans say they are more concerned than excited about the increased use of AI, while only 10% say they are more excited than concerned, according to a recent Pew survey. This sentiment appears to have deteriorated in 2023, which followed the launch of ChatGPT in 2022. Consumer sentiment around AI may need to improve to justify the massive planned future AI infrastructure spending.

Bottom line – how to invest now.

Key Wealth is hosting our National Client Call on Wednesday, December 3, 2025, where we will discuss our 2026 Market and Economic Outlook. We will cover Three Forces of Disruption (concurrent and interconnected):

1) The rise of nationalism and state capitalism, and the related retreat from globalization

2) Advancements in artificial intelligence: the promises, the challenges, and the unknowns

3) The democratization of private markets and changes in market structure

Key Wealth’s investment philosophy is premised on committing capital to areas that are starved for funding and avoiding areas where capital is abundant. AI remains the dominant theme in the economy. As money pours into AI-themed investments, we continue to recommend a diversified approach.

Since Labor Day, we have been advising investors to revisit equity exposures and rebalance where appropriate. This view still holds as the labor market continues to cool, AI exuberance heats up, and credit markets exhibit some shakiness. Widely used indices remain concentrated, potentially leaving investors over-exposed to concentration risk. Diversification remains an attractive strategy, in our view.

Equity Takeaways:

Stocks fell in early Monday trading after rising sharply late last week. The S&P 500 fell approximately 0.7%, to 6801, while the tech-heavy Nasdaq fell approximately 1.1%. Small caps fell approximately 0.6%. International shares were generally lower.

Sentiment has come off the boil over the past few weeks, setting up the markets for a bounce-back rally. Markets had become too bullish a few months ago, and that condition has been worked off. We believe the setup is favorable for a year-end rally.

The AI trade has separated into two camps over the past few weeks and months. The rising tide lifts all boats narrative has changed. On one side are the OpenAI-related names, and on the other side are the names in the Gemini ecosystem. The recent version of Gemini was received very favorably, which has put some pressure on stocks associated with OpenAI (creator of ChatGPT, a competing AI model).

Fixed Income Takeaways:

Treasury yields rose 4–7 basis points in early Monday trading after falling last week. In early Monday trading, 2-year Treasuries were yielding 3.53%, 5-year Treasuries 3.66%, 10-year Treasuries 4.09%, and 30-year Treasuries 4.75%.

President Trump recently stated that he has made his choice to lead the Federal Reserve (Fed), although nothing is official. Kevin Hassett has become the clear favorite to become the next Fed chair, according to Kalshi.

Initial market reaction to Trump’s announcement was positive, as Hassett is expected to continue the Fed’s current rate-cutting cycle. The Fed is widely expected to cut the federal funds rate by another 25 basis points (0.25%) in December. The current federal funds rate is the target range of 3.75% to 4.00%.

Key Takeaways:

Stocks were volatile last week. Bonds rose slightly last week, providing some diversification.

In a choppy week of trading, the S&P 500 fell approximately 2.2% last week, with small caps faring slightly better, dropping 0.8%. International shares fell 3-5%. Gold, copper, and oil also fell, while bonds and the dollar both rose slightly.

Since the start of November, we’ve seen sector rotation beneath the surface of the stock market. Health care and energy have been the two best performing sectors over that timeframe, while consumer discretionary and technology have been the two worst performing sectors. On a year-to-date (YTD) basis, technology remains the best performing sector, so it remains to be seen if the recent rotation is a blip or a true reversal.

Diversification remains paramount. The S&P 500 has become more concentrated in recent years, increasing the potential for volatility. Diversification across sectors, size and geography creates more resilient portfolios, in our view.

The September nonfarm payroll report was finally released last week after a delay due to the government shutdown. The report was stronger than expected, creating more confusion about future Federal Reserve (Fed) policy.

The September nonfarm payroll report showed an increase of 119,000 jobs, the largest rise since April, vs. consensus estimates for a rise of 51,000. The unemployment rate ticked higher, to 4.4%. Wage growth continues to soften. This report was an improvement over recent months and seems to have stabilized concerns about the slowing jobs market.

The Atlanta Fed’s GDPNow estimate for Q3:2025 real GDP rose to more than 4.0% based on the recent batch of data releases. The economy seems to be holding steady, even if the labor market continues its slow cooling.

The Fed remains divided and recent data has done little to clear the picture. Inflation hawks are more worried about inflation vs. growth and prefer to hold rates steady in December. The doves highlight the cooling labor market as justification to cut rates further in December. The current fed funds rate target range is 3.75% to 4.00%.

Five voters have signaled they do not want to cut interest rates in December, while another five have signaled rate cuts are appropriate. Two voters’ opinions are unknown. The Fed’s decision will be announced on December 10.

Bottom line – how to invest now.

Key Wealth’s investment philosophy is premised on committing capital to areas that are starved for funds and avoiding areas where capital is abundant. Artificial Intelligence (AI) remains the dominant theme in the economy. As money pours into AI-themed investments, we continue to recommend a diversified approach.

Since Labor Day, we have been advising investors to revisit equity exposures and rebalance where appropriate. This view still holds as the labor market continues to cool, AI exuberance heats up, and credit markets exhibit some shakiness. Widely-used indices remain concentrated, potentially leaving investors over-exposed to concentration risk. Diversification remains an attractive strategy, in our view.

Equity Takeaways:

Stocks rose in early Monday trading. The S&P 500 rose approximately 0.9%, to 6662. The tech-heavy Nasdaq rose approximately 1.7%, while small caps rose approximately 0.6%. International shares were mixed.

Despite a bounce back rally on Friday, the S&P 500 remains below its 50-day moving average of 6711. The next major support level is the rising 65-day low of 6360. It would not surprise us to see the S&P 500 test its rising 65-day low.

Overall, we believe the market remains in an uptrend as corporate earnings continue to power higher. The forward earnings estimates for the S&P 500 continue to rise. If earnings continue rising, the intermediate- to long-term outlook for the stock market remains favorable.

For context, with 95% of companies reporting, Q3:2025 S&P 500 earnings growth was 13.4%, vs. initial

expectations for 7.9% growth according to FactSet. Revenue growth also exceeded expectations. Approximately 83% of companies beat earnings estimates in the third quarter vs. the long-term average of 76%, according to FactSet.

The VIX futures curve briefly inverted last week, with 1-month implied volatility trading at a premium to 3-month implied volatility. VIX futures curve inversion is a sign of panic. By Friday’s close, the volatility curve had normalized, and the stock market was increasing.

To form an interim price low, the S&P 500 will often undergo a washout where 20-day lows will exceed 50% of issues traded. Recent data shows approximately 24% of issues at a 20-day low – we have not seen a true washout.

The US dollar has been strengthening in recent weeks. A materially higher dollar would be a headwind to equities.

Fixed-Income Takeaways:

Late last week, NY Fed President, John Williams, signaled that he is in favor of a December rate cut, which caused a rally in Treasuries. Short-term yields, which are more sensitive to Fed policy, fell slightly more than long-term yields. Two-year Treasury yields fell approximately 10 basis points on the week, while 10-year Treasury yields fell 9 basis points.

Williams’ comments caused market participants to increase the odds of a December cut. Early on Monday, market participants were pricing approximately a 70% chance of a 25-basis-point rate cut in December, according to Bloomberg data. The current fed funds rate target range is 3.75% to 4.00%.

In early Monday trading, Treasury yields were stable. 2-year Treasuries were yielding 3.52%, 5-year Treasuries 3.62%, 10-year Treasuries 4.05%, and 30-year Treasuries 4.69%.

Credit spreads remain narrow on an absolute basis but have been drifting wider in recent weeks. AI-related companies have increased their borrowing in recent months to help fund the AI infrastructure buildout. Overall leverage at most large AI-related companies remains relatively low but is expected to increase (and bears watching).

Within private credit, investors should carefully examine the liquidity terms, valuation metrics, and redemption policies of any semi-liquid investment. Key Wealth’s Investment Center places strong emphasis on this type of analysis

Key Takeaways:

Both the economy and the stock market are becoming increasingly “K-shaped.”

Through last Friday, November 14, 2025, the S&P 500 has risen 15.8% year-to-date (YTD). The bulk of those returns have been concentrated in companies associated with artificial intelligence (AI), according to data from Bianco Research. The rest of the market has lagged on a relative basis. Even as the stock market has risen, consumer confidence remains low (as measured by the University of Michigan survey).

The divergence between high stock prices and low consumer confidence suggests that many households are feeling left behind. The term “K-shaped economy” is representative of this separation between the “haves” and the “have-nots.”

Since ChatGPT emerged in late 2022, the S&P 500 has increased by approximately $25.9 trillion in value, with approximately 73% of that gain generated by 41 stocks related to AI, according to Bianco Research. Companies associated with AI infrastructure have been the biggest winners, according to Goldman Sachs.

Mentions of the word “afford” on social media have risen sharply since the summer, according to Bianco Research. The Trump administration is aware of this dynamic and has floated ideas such as tariff rebate checks [inflationary?], 50-year mortgages [ill-advised?], portable mortgages [impractical?], and lowering tariffs on certain items [confusing?].

With divergences emerging in both the stock market and the real economy, the trends that worked best over the past three years (when ChatGPT first emerged) may not work best over the next three years. Key Wealth continues to believe that diversification remains the best strategy for the current environment.

The Federal Reserve (Fed) is growing increasingly divided over the path of monetary policy.

There is approximately a 50% chance that the Fed will cut interest rates at their upcoming December meeting, according to Kalshi, down from more than 90% in October. Even if the Fed does cut rates, it is possible that up to three Federal Open Market Committee (FOMC) members could dissent.

The last time this level of dissent existed on the FOMC was nearly 40 years ago. On one side are the inflation hawks, who remain worried that inflation remains above the Committee’s long-term target of 2.0%. On the other side are the doves, who want to cut rates further to stimulate the economy and labor market. The current fed funds rate is the target range of 3.75% to 4.00%.

Bottom line – how to invest now.

Key Wealth’s investment philosophy is premised on committing capital to areas that are starved for funds and avoiding areas where capital is abundant. AI remains the dominant theme in the economy. As money pours into AI-themed investments, we continue to recommend a diversified approach.

Since Labor Day, we have been advising investors to revisit equity exposures and rebalance where appropriate. This view still holds as the labor market continues to cool, AI exuberance heats up, and credit markets exhibit some shakiness. Widely-used indices remain concentrated, potentially leaving investors over-exposed to concentration risk. Diversification remains an attractive strategy, in our view.

Equity Takeaways:

Stocks were mixed in early Monday trading. The S&P 500 was essentially flat at 6733, while the tech-heavy Nasdaq rose approximately 0.1%. Small caps fell approximately 0.4%. International shares were generally lower.

The S&P 500 re-tested its recent lows last week before rebounding slightly to close above its 50-day moving average. Further weakness would open the door to a 3-5% correction in the coming weeks. Typically, November is a strong seasonal month, but the stock market has not been following traditional seasonal patterns this year.

The S&P 500 will likely end this year with approximately $310 in forward earnings expectations for 2026, according to data from Bloomberg. This is a positive surprise relative to estimates from earlier this year, and as long as earnings growth remains solid, the outlook for the stock market will remain positive over the intermediate- to long-term.

One note of caution – cyclical sectors of the market are weakening relative to defensives. Market participants might be getting more cautious regarding a possible Fed policy error, or further potential weakening in the economy. Defensive sectors include sectors like consumer staples and health care, while cyclicals include areas like industrials and materials.

The health care sector has strengthened relative to the technology sector in recent weeks. Earlier in the year, technology was the belle of the ball; but that trend has changed, implying that market participants are becoming more cautious.

We continue to recommend gold as part of a diversified real asset allocation. Global central bank demand for gold rose sharply post-2020, and ETF flows turned positive in early 2024, according to data from Bloomberg, VanEck, and the World Gold Council. Volatility has picked up in recent weeks, but we still like gold as a long-term diversifier.

Fixed-Income Takeaways:

Treasury yields shifted approximately 5 basis points higher across the curve last week as investors began to doubt that the Fed will cut rates in December. The odds for a December rate cut were seen as very high in October, but as of November 16, they were about 50/50.

Looking forward, market participants expect the fed funds rate to end next year (2026) in the low 3.00% area. The current fed funds rate is the target range of 3.75% to 4.00%.

In early Monday trading, yields were relatively stable, with 2-year Treasuries yielding 3.61%, 5-year Treasuries 3.72%, 10-year Treasuries 4.13%, and 30-year Treasuries 4.73%.

Three Treasury auctions occurred last week. The US Treasury auctioned 3-year notes, 10-year notes, and 30-year bonds. Each auction went relatively well, showing that demand for US government debt remains robust.

As the government reopens and more data becomes available, Treasury market volatility could increase. In addition, if the Trump administration’s tariff policy is struck down by the Supreme Court, the government may be forced to issue additional debt to cover lost revenue, which could put some upward pressure on Treasury yields.

Key Takeaways:

Three themes took center stage last week, all suggesting that volatility may increase.

First, Trump’s tax and broader authority to usurp Congress was called into question. Last week, oral arguments were heard in the US Supreme Court over Trump’s ability to impose tariffs under the International Emergency Economic Powers Act (IEEPA). Based on the line of questioning, markets are leaning towards these tariffs being struck down, with uncertain market impact.

Second, the economic data fog thickened further which may cause the Federal Reserve (Fed) to pause their rate cutting cycle. Private-sector job cuts are rising, according to the Challenger Report; but other sources of data, such as the ADP private employment report, paint a more benign picture of the labor market. The labor market is doing okay but is not out of the clear.

Third, the artificial intelligence (AI) build-out may have entered a new (riskier) phase. Capital spending is being increasingly funded with debt instead of cash flow, according to data from WSJ.com. AI themes are linked to almost 50% of the S&P 500’s index weight, according to Bianco Research, so any volatility in AI-related stocks would have a significant impact on the broader market.

The US government shutdown appears to be near an ending.

In the Senate, eight Democrats joined with Republicans based on a compromise framework that would fund the government through January 30, 2026. The compromise provides full-year appropriations for several areas, including Agriculture (including SNAP), Veterans Affairs, FDA, and military construction.

Any federal mass firings initiated during the shutdown would be reversed, and any pending mass firings would be frozen until January 30, 2026. The compromise also confirms that back pay would be provided to all federal workers and guarantees Senate Democrats a vote on a bill of their choosing regarding Affordable Care Act enhanced subsidies in December.

Passage of the framework is not guaranteed but seems likely. The risk of another shutdown at the end of January is low but possible. This compromise could raise the odds of a Fed rate cut in December as more data would become available; but data-dependency may re-emerge as the Fed’s mantra, and on that point, it appears as if the September labor report would be released shortly after the shutdown ends, however, whether the reports for October and November are released are much more uncertain.

Bottom line – how to invest now.

Key Wealth’s investment philosophy is premised on committing capital to areas that are starved for funds and avoiding areas where capital is abundant. AI remains the dominant theme in the economy. As money pours into AI-themed investments, we continue to recommend a diversified approach.

Since Labor Day, we have been advising investors to revisit equity exposures and rebalance where appropriate. This view still holds as the labor market continues to cool, AI exuberance heats up, and credit markets exhibit some shakiness. Widely-used indices remain concentrated, potentially leaving investors over-exposed to concentration risk. Diversification remains an attractive strategy, in our view.

Equity Takeaways:

Stocks rose in early Monday trading on news of a potential end to the government shutdown. The S&P 500 rose approximately 1.1%, to 6804. The tech-heavy Nasdaq rose approximately 1.9%, while small caps rose approximately 0.8%. International shares were generally higher.

The S&P 500 is in the midst of a shallow pullback which does not look nefarious to us, for now. Two important support levels are 6500 and 6343, the latter of which is the rising 65-day low. The market remains in an uptrend and appears to be working off an overbought condition.

Momentum in the S&P 500 is fading. As of last Friday, new 20-day highs were down to approximately 8%. Fewer issues are making new 20-day highs. Spikes higher in this measure typically indicate strong breadth, and vice versa.

Implied volatility (VIX) crested at just above 20.0 last week and dipped to around 18.0 in early Monday trading, near its long-term average of 19.5. Volatility did not spike higher in the recent pullback; the move has been orderly, which is normal behavior within an uptrend.

Earnings remain strong. With approximately 91% of S&P 500 companies reporting, 82% have exceeded earnings forecasts according to FactSet, above the 10-year average of 75%. Market reaction has been muted, suggesting valuations have become extended in the short run.

The US dollar is bumping up against overhead resistance after rallying slightly over the past few months. We expect the recent dollar rally to fade back into its recent trading range, which could be positive for gold.

Gold has pulled back sharply off a parabolic rally but remains in an uptrend. Gold remains a hedge against uncertainty. Central banks have been accumulating gold, according to data from Goldman Sachs and the World Gold Council. We continue to recommend gold as part of a diversified real asset allocation.

Fixed-Income Takeaways:

Treasury yields were essentially flat last week with short-term yields falling 1-2 basis points and long-term yields rising several basis points. The 2-year / 10-year Treasury curve remains in a well-defined range.

In early Monday trading, 2-year Treasuries were yielding 3.57%, 5-year Treasuries 3.69%, 10-year Treasuries 4.10%, and 30-year Treasuries 4.70%.

Market participants are currently pricing approximately a 65% chance of a 25-basis-point rate cut in December. Fed governors appear divided on the risks of inflation versus the risk of a slowing labor market. The current fed funds rate is the target range of 3.75% to 4.00%.

Both investment-grade (IG) and high-yield credit spreads have been moving wider in recent weeks. CCC-rated bonds are underperforming higher-rated issues. Bond investors are positioning themselves more defensively than equity investors. We continue to favor high-quality corporate bonds within client portfolios.