Overview
Markets fared well in the first month of the new year. U.S. large-cap stocks, as proxied by
the S&P 500 Index, gained 1.5%, underperforming the U.S. small-cap Russell 2000 Index,
which ended January up 5.4%. U.S. intermediate-term bonds, as represented by the
Bloomberg U.S. Aggregate Bond Index, ended January flat, up 0.1%.
Inflation remained steady in the last month of 2025, at 2.7% year-over-year.1 Although
shelter costs rose by 0.4% month-over-month (compared to 0.2% the month before), the
increase was notably smaller than in recent years, which indicates a continued cooling in
housing inflation.2 Progress, however, stalled in other categories. Food-at-home prices
rose 0.7% month-over-month, the biggest monthly gain since August 2022.3

The U.S. economy added only 50,000 new jobs in December.4 The sectors that
experienced the largest job cuts in 2025 include government (a 10% decline in the federal
workforce) and professional and business services (a 1.2% decline in administrative and
support staff).5 Average wages remain above inflation, rising 3.8% year over year.
Consumer sentiment remained subdued in the first month of the new year, weighed down
by higher prices and a weakening labor market. The Conference Board’s consumer
confidence index fell from 89 to 85 in January, reaching its lowest level since May 2014
and surpassing COVID-19 lows.6 The University of Michigan’s consumer sentiment gauge
ticked slightly higher, from 54 in December to 56 in January, driven by ongoing price
concerns, but it remains near historic lows and 20% below January 2025 levels.7

Despite muted sentiment, consumer spending has remained resilient, supported by higher
-income households and a declining savings rate. The personal saving rate dropped to
2.5% in November—the most recent data available—the lowest since June 2022 and well
below the 10-year average of 7%.8