MONTHLY MARKET MUSINGS

December 2025

A Volatile Noisy Month

November had its fair share of volatility as markets seemed to be driven purely by daily sentiment with no thought beyond the next trading session. The upcoming U.S. Federal Reserve (Fed) meeting in December has become a key focus. Markets have been on both ends of the spectrum as to whether or not we will see another interest rate cut this month. While the December meeting is relevant, the amount of importance being placed on it seems to be shortsighted. The expectation for 2026 is more rate cuts regardless of what happens at the December meeting. This should be viewed more as a potential delay in rate cuts if the Fed were to pause this month rather than a definite reduction in the number of cuts expected. A Fed pause in December does not necessarily mean fewer cuts. The Fed decisions will continue to be data dependent and both growth and inflation will be the key data points for policymakers.

The recent quarterly earnings season is mostly done, and the overall results were very good to say the least. 83% of S&P 500 index (S&P) companies reported an earnings beat. Growth remained strong with average earnings growth of 13.04%. 75% of the companies in the S&P 500 index reported positive earnings growth year-over-year and revenue also grew by 8.3% on average. The S&P/TSX Composite index (TSX) also posted mostly strong results with earnings growth averaging 10.9%[1].

The holiday shopping season is off to a good start as Black Friday numbers look to be very strong, and consumers have spent record amounts online. According to Adobe Analytics, the online sales on Friday reached US$11.8B which is a 9.1% increase year-over-year[2]. Salesforce, which also separately tracks Black Friday data, had similar positive findings[3]. One interesting takeaway was that a good portion of the sales were attributed to AI-driven traffic to retail websites. According to Adobe, AI traffic to retail websites was up 805% when compared to last year. Salesforce also noted that approximately US$14.2B of global sales and about US$3B of U.S. sales were from the AI-driven traffic. This should be viewed as a clear example of where AI is being immediately applied. Many have noted that the expectation will be that most online shopping will be AI-driven in the coming years. AI agents will present an easier, more comprehensive and efficient way to shop and the recent Black Friday data seems to suggest that this is the direction consumers are heading in. Imagine that instead of spending significant amounts of time searching online for a specific product or for the best deal, an AI agent could do all of this in a matter of seconds with the user just asking a few simple questions. With holiday shopping now underway, it is likely that we will see continued strong sales numbers which should curb some of the concerns about the overall sentiment and health of the U.S. consumer.

One of the main contributors to the market's wall of worry over the past few months has been the continued unease surrounding the valuation of equities and the supposed AI bubble. Despite the numerous media references to equities being at extreme levels of valuation, it would likely surprise many to see that valuations are much lower for technology companies now than they were during the dotcom bubble. The average Nasdaq 100 forward P/E ratio reached 60.1x according to several sources at its peak in March 2000.[4] Currently, the forward P/E on the Nasdaq 100 is about 30.1x.[5] This highlights a substantial difference between the valuations which were at bubble levels in 2000 compared to where they are now. The biggest difference between these two time periods is that currently there is substantial earnings growth and profitability within the technology sector and as highlighted above, this does not seem to be losing any steam any time soon.

Overall, this earnings season showed us that despite the market fear and panic-inducing headlines, fundamentals remain strong and resilient. The fear and greed cycle will likely continue to hold influence over investor sentiment throughout the coming months, but the health of the equity markets remains intact. As they often do, the fears will fizzle out, and the underlying fundamentals and trends will regain traction. AI adoption is emerging and being realised right now, and it looks like 2026 could shape up to be the year that begins to showcase the applicability and scaling up of this revolutionary technology.

JAY SMITH, CIM®, FCSI®

Senior Portfolio Manager & Senior Wealth Advisor    

jay.smith@cibc.ca

BRAD BROWN, MBA, CFA®
Portfolio Manager & Associate Investment Advisor

brad.brown@cibc.com