People visit the Statue of Liberty on Liberty Island, as seen from a ferry on the Hudson River, Jersey City, New Jersey, U.S., December 22, 2025. REUTERS/Eduardo Munoz
Macro Update
December marked a transition point for markets as investors finally took a breather to assess the cumulative impact of this year’s market shocks, structural investment trends, and shifting policy expectations. The year was characterized by elevated geopolitical risk, ongoing trade and tariff uncertainty, inflation concerns, and record-breaking rallies within the commodity markets. At the same time, companies restructured for the future, as capital expenditures related to artificial intelligence accelerated, with players across the board racing to gain leading market share in many sectors. Against this backdrop, concerns, about the growth of the U.S. economy intensified as the U.S entered its longest government shutdown in history.
Labor market conditions continue to weaken, and the unemployment rate is unable to gain its footing. In mid-November, the unemployment rate stood at 4.6% and declined modestly to 4.4% in December. Despite ongoing Federal Reserve interventions, the economy remains subject to the lagging effects of elevated borrowing costs and tighter credit conditions. Total nonfarm payroll growth undershot expectations in December, rising by 50,000 versus Reuters estimates of 60,000. Downward revisions to prior months reinforced the narrative of a decelerating labor demand. October’s revision continued to add salt to the wound by being revised down 68,000 points to bring the reported negative 105,000 value to -negative 173,000. This trend continued in November, forcing nonfarm payroll data to be revised from 64,000 to 56,000.
Inflation continued to trend lower but remained above the Fed’s target. Headline CPI increased 0.3% month over month (MoM) in December, bringing the year-over-year (YoY) rate to 2.7%. Price pressures remained uneven across the index, with food prices rising 0.7% in September and utility (piped) gas increased 4.4% in December, a leap from the negative 1.2% reported in September. The Core CPI index rose 0.2%, driven primarily by apparel (0.6%), transportation services (0.5%), and shelter (0.4%).
Looking at rates, investors saw elevated volatility across the yield curve. Short-term yields moved in reaction to the changing expectations surrounding why longer-term yields were influenced by shifts in duration risk. The yield curve alternated between periods of steepening, as investors priced in a more dovish policy stance, and flattening during episodes of favorable growth data. Equity markets experienced a shift in investor sentiment, with more investors reallocating between sector and style rotation. Entering the year, the market entered a rough patch, and the shifts between growth and value became prominent. However, inflows into value and safe-haven assets continued to show signs of life as investors tip-toed into other avenues.
U.S. Fund Market Summary
Equity Funds
U.S. equity funds recorded strong inflows in December, attracting approximately $71bn and ending the year with roughly $185.7bn in net inflows. December represented the largest monthly inflow of the year, with U.S. Diversified Equity macro-classification accounting for approximately $51bn of the total, driven largely by S&P 500 index strategies. In preparation for the new year, it seems that some investors have continued optimism around the S&P 500, while also are strategically being more selective toward allocation rather than following the herd.
Despite strong inflows, S&P 500 index funds ranked in the fourth quartile within the U.S. Diversified Equity macro-classification, posting a modest performance of 0.04% for the month. In contrast, the top-performing classifications were valued-oriented segments, included Multi-Cap Value (1.20%), Mid-Cap Value (1.02%), and Small-Cap Value (0.87%).
Commodity Funds
Commodity funds experienced a renewed surge in investor demand, supported by strong performance in Precious Metals and elevated geopolitical risk. Gold continued its upward trajectory, extending gains from November into December, while platinum and silver also posted outsized returns over the year. Commodity funds recorded net inflows of approximately $10.3bn in December, a sharp reversal from outflows of $2.3bn in December 2024.
The increase in commodity flows reflected a combination of supply constraints, inflation uncertainty, and geopolitical tensions. Inflows through 2025 were closely aligned with periods of heightened risk sentiment and disruptions to global supply chains. As macro uncertainty intensified, investors increasingly viewed commodities as both an inflation hedge and a diversified tool within a multi-asset portfolio.
Fixed Income
Taxable Bond Funds
Taxable bond funds attracted approximately $31.5bn in net inflows in December, led by Short/Intermediate Investment Grade Corporate Bond Funds, which captured roughly $14bn. U.S. General Domestic Taxable Fixed Income Funds and Short/Intermediate Government and Treasury Funds followed with inflows of $3.8bn and $4.4bn, respectively. Short/Intermediate Investment Grade Funds also led for the year, with inflows of approximately $147bn.
Fixed Income
Municipal Bond Funds
Municipals ended the month in favorable territory, recording $3.4 bn in net flows supported by Short and Intermediate Municipal strategies.
Alternative Funds
Alternatives cooled from $9.6bn in net inflows the prior month to $5.5bn in December. The deceleration was largely driven by Equity Leveraged Funds, where inflows fell from roughly $6bn in November to $22m in December. This drastic decline is quite common at the end of the year, as investors reset for the upcoming year and harvest gains and losses from funds with extreme volatility.
Outside of leveraged exposure, demand was more resilient: Option Arbitrage/Option Strategies funds drew a solid $4.7bn in net flows.
Mixed-Asset Funds
Mixed-Asset Funds continue to stand apart; for the wrong reasons. Despite periods of positive weekly inflows, broader redemptions at the monthly level continue to tilt towards negative territory. In December, Mixed-Asset Funds posted $9.8bn in outflows, marking 53 consecutive months of negative monthly flows.
Money Market Funds
Money Market Funds recorded substantial inflows of approximately $167.4bn for the month of December, marking the largest monthly inflow of 2025 and one of the highest levels since the global financial crisis. This followed similarly elevated inflows in October, underscoring sustained demand for liquidity and capital preservation.
The persistence of money market inflows suggests that investors continue to balance risk exposure with defensive positioning. Elevated cash allocation reflects uncertainty around prospective economic conditions, rate volatility, and geopolitical uncertainty.
Figure 1: Performance Quilt
Figure 2: Index Performance
Figure 3: Fund Family Estimated Net Flows
