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The December Unwrap

Can you believe December is almost over? It feels like we just got here (and with our shoulders still aching from hanging Christmas tree lights). If you are like most investors, you might be looking at your portfolio and wondering, “What happens next?”

Despite a year packed with turbulence in all its forms—politics, tariffs, war, sticky inflation, and enough “recession is coming” headlines to fill a library—the market decided to deliver positive results, served with a healthy side of caution. As we close out the year, let’s unwrap what actually happened and look ahead to what may be coming.


1. The Stocking is Full (But Mostly with Tech)

Looking back, the S&P 500 and NASDAQ indexes posted an encouraging seven-month winning streak through November. That’s the longest streak since we crawled out of the lockdown economy in 2021. But if we look closer, it wasn’t the kind of broad-based rally that indicates a rising tide lifting all boats. Instead, it was a bit like kids picking at only their favorite side dishes while everyone else feasted on the massive holiday spread.


Even within the “Magnificent 7,” the group has fractured. Only two of the stocks truly led the way (Alphabet and NVIDIA), while former darlings like Tesla and Amazon trailed far behind. The lesson here is that it sometimes pays to be like those kids: be picky.


2. The Lump of Coal? (The U.S. Bond Index)

For decades, bonds have been that calm retreat for the moment when equity markets go haywire. However, this year was a little different. We are seeing a “diversification mirage,” where bonds moved in a similar direction to stocks. For instance, long-term Treasury yields spiked to 3-month highs recently, which caused bond prices to fall just as stocks started to wobble. Investors were (and are) worried about out-of-control government spending and compounding debt.

In moments like this, both sides of the “60/40” portfolio move in lock-step. So investors ask, “What can we do when traditional asset allocation models fail to diversify risk?”

  • First: Re-frame the situation in the broader context of history. Such moments tend to be transient – and cherry-picked with an emotional fear-based bias when reviewing decades of performance.
  • Second: Turn your attention away from what we cannot control towards what we can—which is why we prefer actively managed fixed income over passively managed index strategies. According to Morningstar data, 69% of active intermediate core-plus bond managers beat their index this year. Active management buys teams of professionals to underwrite risk and navigate the yield curve, rather than just holding the broad market. This can help you win more by losing less when index funds begin to show signs of stress.


3. The “Plan B” Advantage

The good news is that when markets begin to act irrationally over here, we still have a world of investment options over there. When uncertainty strikes, we can turn to developed international markets and emerging markets (EM) for further opportunities.


For the first time in years, Developed International and Emerging Markets outperformed the S&P 500. While some of this can be attributed to a softening U.S. dollar, foreign stocks performed well on their own merits. The great irony is that despite emerging markets performing so beautifully, investors have pulled billions out of this asset class—potentially making the mistake of fleeing what is working just because it feels unfamiliar. It may make sense to remain invested in EM for the foreseeable future because those economies stand to gain from the Artificial Intelligence boom, particularly as AI helps modernize their infrastructure.


4. Don’t Let the Grinch Steal Your Rally

Here is the strangest statistic of 2025: Consumer sentiment is near record lows, and the gap between how Republicans and Democrats view the economy is at a record 61-point spread, according to BlackRock’s December issue of Student of the Market.


This means that people feel bad, but the market is at all-time highs. If you invested based on how the news made you feel, you likely remained in cash and missed a banner year. As much as we sound like a broken record, the key to meeting your long-term financial goals is to stay invested. You stand to lose more by timing the market and failing than by staying in and enduring the chop! On a similar note, as we head into 2026, let’s make a resolution to leave the politics at the voting booth and keep them out of your portfolio. The market is neither Republican nor Democrat!


Happy Holidays to you and yours from the Align team!

Holiday Fun Factoid: As you prepare for Santa’s visit, please spare a thought for the sheer logistics of Christmas Eve. Scientists have calculated that to deliver gifts to every celebrating household on Earth, Santa’s sleigh would be carrying approximately 354,430 tons of toys. To get that payload airborne, he’d need roughly 214,200 reindeer. Let’s hope the elves have a good logistics team (and plenty of carrots)!

Christmas 2025: 24 data-driven festive facts and stats – Peak

This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product.

Investments are subject to risk, including the loss of principal. Some investments are not suitable for all investors, and there is no guarantee that any investing goal will be met. Past performance is no guarantee of future results. Talk to your financial advisor before making any investing decisions.

Diversification does not assure a profit or protect against loss in declining markets, and diversification cannot guarantee that any objective or goal will be achieved.

The main risks of international investing are currency fluctuations, differences in accounting methods; foreign taxation; economic, political, or financial instability; lack of timely or reliable information; and unfavorable political or legal developments.

Emerging market investments may involve higher risks than investments from developed countries and also involve increased risks due to differences in accounting methods, foreign taxation, political instability, and currency fluctuation.