December FOMC Decision to Outline Rate Cutting Path for 2026

Economic Outlook - The Federal Reserve is expected to implement a 25 basis point cut, with a potential pause in January due to divisions among Fed governors [1][2] - There is an anticipation of weak retail sales for October, but a more positive outlook for November and the holiday season [2][3] - The consensus for the unemployment rate in 2026 is projected to be around 4.5%, indicating a soft landing for the economy [4][5] Labor Market Insights - Job openings have fluctuated, with a potential drop from 7.5 million to 6 million, which could lead to a rapid increase in the unemployment rate to 6% [6][7] - There has been a slight uptick in the unemployment rate, with figures moving from 4.0% at the beginning of the year to 4.4% in September, indicating a stagnant labor market [8] - Despite concerns, there is an expectation of GDP growth in the range of 1.5% to 2% next year, which may support job growth and stabilize the unemployment rate [9][10] Consumer Spending and Inflation - Compensation growth is expected to rise by 3.5% to 4% next year, which, combined with a low inflation environment of just under 3%, could lead to an increase in consumer spending [10][11] - Concerns remain regarding PCE inflation, driven by immigration policy changes and a tight labor market, particularly affecting lower-income sectors [12] Investment Trends - There is a notable trend in capital expenditure (capex) spending, particularly in equipment investment, with strong demand observed in the auto sector [19][20] - However, there are concerns about structural investment, especially in commercial construction, which may face weaknesses due to excess supply and slowed shifts to electric vehicles (EVs) [22][23] Market Positioning - The strategy for portfolio positioning is to maintain market weight on midcaps and large caps while being underweight on small caps due to concerns over small firm hiring [16][17] - There is a focus on midcaps with strong cash flow growth and large caps, while the momentum trade in mega caps is still considered viable [18]