Stronger US Growth Boosts Equities

For the week ending 24 December 2025

As of midday Wednesday, global equites head into the Christmas break near record territory as the S&P 500 closed at an all-time high Tuesday. The yield on the US 10-year Treasury note was little changed from last Friday at 4.16%, while the price of a barrel of West Texas Intermediate crude oil rose $2 to 58.50. Volatility, as measured by futures contracts on the Cboe Volatility Index (VIX), fell to 16.85 from 18.

MACRO NEWS

US economy grew faster than expected in Q3

US GDP grew at a 4.3% rate in the third quarter, the fastest in two years, boosted by resilient consumer spending, a surge in data center investment and a declining trade deficit. In Q2, the economy grew at a 3.8% annual rate, and economists had estimated that growth in Q3 would expand at a 3.3% rate Economists do expect growth to slow to 1.8% in Q4, in part due to the government shutdown. Because of the shutdown, the US Bureau of Economic Analysis will issue two GDP estimates for the third quarter, rather than the customary three reports. Released separately, October durable goods orders fell 2.2%, though non-defense capital goods orders ex aircraft rose 0.5%. The odds of a January rate cut from the US Federal Reserve, which were already low, declined to 13% after the figures and Treasury yields rose.

AI-related borrowing pushes US issuance near record

Issuance of US investment grade corporate bonds totaled around $1.7 trillion in 2025, close to the $1.8 trillion issued in 2020. According to Goldman Sachs, about 30% of those bond sales was linked to tech giants’ demand for AI infrastructure. As these companies are shifting to more aggressive borrowing in the bond market, corporate issuance is expected to expand further in 2026, which could put upward pressure on today’s tight yield spreads over Treasuries.

Trump: Strong markets don’t cause inflation

US President Donald Trump posted on social media Tuesday that he wants his new Fed chair to lower rates even if markets are doing well, because, according to him, strong markets do not cause inflation. He claims inflation will take care of itself and, if it doesn’t, he says we can always raise rates at the appropriate time. He concludes his post stating, “Anybody who disagrees me will never be Fed chairman!”

Zelensky open to demilitarized zone in eastern Ukraine

Ukrainian President Volodymir Zelensky said Wednesday that his is open to a free economic zone in the eastern part of Ukraine if Russia pulls back but that the idea must be put to a vote of the Ukrainian people. He wants the zone to be a demilitarized, free economic zone, monitored by international forces. Any plan to end the war must also be put to a vote, he said.

QUICK HITS

US Treasury Secretary Scott Bessent backed this week the idea of reconsidering the Fed’s 2% inflation target. He said he favors shifting to a range around 2% once price levels have been re-anchored to the current 2% target. Bessent suggested a switch to about 1.5% to 2.5% or perhaps 1% to 3%.

With a weak yen contributing to Japan’s inflation problem, the country’s finance minister, Satsuki Katayama, warned traders that authorities have a “free hand to take bold action” to counter the currency’s weakness. She said recent market moves are speculative and are not based on fundamentals.

According to the US Department of Education, the US government will begin garnishing the wages of student loan borrowers who are in default starting in January. Garnishments have been paused since the outbreak of the pandemic in early 2020.

The bourbon boom appears to be over. Jim Beam will stop production at its main Kentucky distillery in 2026 due to a whiskey surplus, the dwindling interest in drinking among young adults and declining foreign demand from trade tensions.

According to the Wall Street Journal, the US blockade of Venezuela’s shadow fleet of oil tankers is negatively impacting the Cuban economy, because of its heavy reliance on cheap Venezuelan crude.

The US – China trade détente continues with the US announcing Tuesday that it will delay an increase in tariffs on imports of semiconductors from China until June 2027.

US forces carried out attacks on more than 70 targets in Syria on Friday, as the Trump administration retaliated for an ambush that killed three Americans last week. Jordanian forces joined in the strikes, which targeted Islamic State infrastructure and weapons sites.

ECB executive board member Isabel Schabel said Monday she sees no rate hikes in the foreseeable future, and she expects policy to stay stable for quite some time.

President Trump appointed Louisiana Governor Jeff Landry this week to be special envoy to Greenland with the aim of enhancing US national security interests. Both Greenland, a semiautonomous region within the Kingdom of Denmark, and the Danish government oppose Trump's efforts.

In an interview with Nikkei, Japanese Prime Minister Sanae Takaichi said she would not implement irresponsible tax cuts, indicating she could curb new government bond issuance. To finance increases in defense outlays, Takaichi’s ruling coalition recently proposed raising income taxes by 1% across all income brackets starting in 2027.

The Conference Board’s measure of US consumer confidence came in at 89.1 in December, down from an upwardly revised 92.9 in November.

The minutes from the Bank of Canada’s meeting on December 10 showed that policymakers agree that it’s unclear whether the next interest rate move will be a hike or a cut.

The S&P 500 posted a new record high of 6,909.79 on Tuesday afternoon.

On Tuesday, the French National Assembly passed a special law to fund public services through January. This decision comes after failing for the second year in a row to agree on a new national budget before the end of the year.

The Wall Street Journal reported Tuesday that the US moved a large number of special-operations aircraft, troops and equipment into the Caribbean this week, providing Washington additional options for possible military action in Venezuela.

US weekly jobless claims fell 10,000 to 214,000 last week, which suggests the labor market is not deteriorating rapidly.

THE WEEK AHEAD

Monday: US pending homes sales

Tuesday: US Case Shiller Home Price Index, FOMC minutes

Wednesday: US initial jobless claims

Thursday: New Year’s Day

Friday: Global manufacturing PMIs

Stay focused and diversified
In any market environment, we strongly believe that investors should stay diversified across a variety of asset classes. By working closely with your investment professional, you can help ensure that your portfolio is properly diversified and that your financial plan supports your long-term goals, time horizon and tolerance for risk. Diversification does not guarantee a profit or protect against loss.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any MFS product.

Securities discussed may or may not be holdings in any of the MFS funds. For a complete list of holdings for any MFS portfolio, please see the most recent annual, semiannual or quarterly report. Full holdings are also available on the individual Fund Summary tab in the Products section of mfs.com.

The views expressed in this article are those of MFS and are subject to change at any time. No forecasts can be guaranteed.

Past performance is no guarantee of future results.

Sources: MFS research, Wall Street Journal, Financial Times, Reuters, Bloomberg News, FactSet Research.