December disappointed investors as markets wavered amid concerns about global growth and persistent inflation, setting a cautious tone for 2025. U.S. stocks struggled, with the S&P 500 down 2.4% and the Dow Jones falling 5.1%. Small caps in the Russell 2000 were hit hardest, tumbling 8.3%, as investors shied away from riskier, domestically focused companies.
The Barclays Aggregate Bond Index fell 1.6%, while the Barclays Municipal Bond Index dropped 1.5%. Bonds were pressured by sticky inflation expectations and disappointment over Federal Reserve Chair Jerome Powell's communication during the December meeting, which emphasized the likelihood of keeping interest rates elevated for an extended period.
International markets also faced challenges, with the MSCI EAFE index down 2.3% and the MSCI Emerging Markets Index edging lower by 0.1%, as weak economic data and lingering global trade concerns weighed on sentiment.
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