Market Movers & Shakers

Major U.S. equity indices delivered mixed results last week, driven by the continuation of the recent rotation in stocks. The S&P 500 and the tech-heavy Nasdaq ended the week in negative territory, declining 0.63% and 1.62%, respectively. In contrast, the Dow Jones Industrial Average and the small-cap Russell 2000 finished higher, advancing 1.05% and 1.19%, respectively. This divergence in performance reflects a shift in investor sentiment, with capital rotating out of recent high-flying AI stocks and into more cyclical and value-oriented segments of the market. From a sector standpoint, Materials, Financials, and Industrials were the top performers, while Communication Services, Information Technology, and Utilities underperformed. Beneath the surface, the market continues to broaden out from an environment that was characterized as very top-heavy with narrow market leadership. Market breadth metrics confirm the underlying strength: the S&P 500 advance/decline line broke out to new highs last week, while the percentage of companies trading above their 50- and 200-day moving averages has been trending higher since mid-November. As we enter the final trading days of 2025, strong seasonal dynamics, specifically the potential for a Santa Claus Rally and the anticipation of the January Effect, serve as a potential tailwind for stocks into year-end.

The Federal Reserve cut interest rates by 25 basis points last week at its December meeting, reducing the federal-funds rate target range to between 3.50% and 3.75%. The decision marks the third consecutive meeting with an interest rate cut. However, stalled progress on inflation and a cooling labor market made for one of the most divided meetings in years. The Fed voted 9-3, the first time in six years that three officials cast dissenting votes. Chicago Fed President Austan Goolsbee and Kansas City Fed President Jeff Schmid opposed the rate cut and preferred to keep rates steady, while Fed Governor Stephen Miran dissented in favor of a larger 50 basis point cut. Revealed within the updated Summary of Economic Projections (SEP), four additional “soft dissents” signaled internal disagreement by setting their end-2025 rate projections 25 basis points higher than the newly announced fed funds target.



Source: The Wall Street Journal, Federal Reserve Bank of St. Louis

The general expectation ahead of last week’s FOMC meeting was for a “hawkish cut”, or a decrease in rates tempered by conservative guidance regarding future 2026 reductions. Instead, Fed Chair Powell’s comments in the post-meeting press conference leaned more dovish than anticipated, keeping the door open for potential further rate cuts in early 2026. The policy-sensitive short-end of the yield curve rallied on the prospect of additional easing. The yield on the U.S. 2-Year Treasury note ticked lower to 3.50%, while yields on the long-end of the curve rose to the highest levels since early September. Perhaps the most notable update from the December FOMC meeting was the Fed’s announcement of a $40 billion short-term bond buying program. Aiming to head off bouts of pressure in overnight lending markets that are critical to the broader financial system, the Fed said it would start its balance-sheet expansion with $40 billion of T-Bill purchases this month, with plans to taper the pace of the new buying sometime next year.

In other Fed-related news, the market’s expectation for President Trump’s Fed Chair nominee has reversed course significantly since the beginning of December. Kevin Hassett, who markets had recently priced at over an 80% probability just two weeks ago, has been overtaken by Kevin Warsh in prediction markets like Polymarket and Kalshi. This sharp shift was reportedly fueled by a CNBC report detailing pushback against Hassett’s candidacy from those close to the President. The core of the resistance centers on concerns that Hassett is too closely aligned with the White House, which some fear could undermine perceptions of the Federal Reserve’s independence and potentially cause a negative reaction in the bond market.



Source: Polymarket

AI stocks remained under pressure last week after the release of high-profile earnings reports from Oracle and Broadcom. Oracle shares fell by more than 12% following fiscal Q2 results that raised questions about the capital intensity of its AI ambitions. Free cash flow missed expectations concurrent with a $15 billion increase in FY 2026 capex guidance, bringing the total AI spend figure to $50 billion. The announcement pushed Oracle’s credit default swaps to a five-year high. Sentiment around the stock soured further following a Bloomberg report that some of Oracle’s data center projects for OpenAI could be delayed by a year to 2028 due to labor and material shortages; however, Oracle has since disputed the report, saying that site delivery timelines remain on schedule.

Despite posting a record quarter and raising its Q1 outlook, Broadcom shares fell roughly 8% following results, pointing to just how high of a bar the company had to clear to justify the stock’s +75% year-to-date gain. A primary concern for investors is that Broadcom’s expanding AI segment is actually creating a business-mix headwind for overall profitability, given Broadcom’s AI hardware carries lower margins than the company’s traditional software or specialized networking products. Broadcom CFO Kirsten Spears confirmed this trend during the earnings call, noting “we expect Q1 consolidated gross margin to be down approximately 100 basis points sequentially, primarily reflecting a higher mix of AI revenue”. It seems the market’s mania phase with AI has transitioned into a more skeptical “show me the money” era. Since the launch of ChatGPT in late 2022, investors consistently awarded premium valuations to any company with an AI narrative, overlooking the lack of a clear and realistic path to profitability. That broad enthusiasm for AI as a rising tide that lifts all boats has seemingly come to an end. Markets are now increasingly penalizing companies that ramp up on AI spending without providing concrete ROI timelines, signaling that high capex is no longer a virtue–it’s a risk.



Source: FactSet

Updates & News*

The pace at which Tandem has transitioned new accounts and recent deposits in manager-traded accounts has slowed since our last update in early November, reflecting the broadening out of the market discussed earlier. With that being said, transition speeds overall still remain accelerated relative to our historical 3-6-month timeline. New accounts and accounts with recent deposits that have been under Tandem’s management for two weeks are approximately one-third of the way invested in our strategies. By the one-month mark, new money is just over 50% of the way in line with our strategies, and by the three-month mark, nearly three-quarters of the way invested.

In portfolio news, Accenture announced a multi-year partnership with Anthropic, creator of the Claude family of large language models that compete with OpenAI’s ChatGPT and Google’s Gemini. The companies will launch a new joint offering for CIOs to scale AI-powered software development and will co-develop solutions for regulated industries. The partnership announcement comes just weeks after Accenture partnered with OpenAI to bring ChatGPT Enterprise to its employees. Elsewhere, NextEra Energy announced a strategic partnership with Google to build multiple gigawatts (GW) of data center capacity and energy infrastructure across the United States. The announcement builds on an existing relationship between NextEra and Google, as the companies already have approximately 3.5 GW in operation. Lastly, a number of Tandem’s holdings recently announced dividend increases, led by a 14.5% increase from Mastercard. Other notable hikes included Abbott Labs (+6.8%), Zoetis (+6.0%), and Stryker (+4.8%).

Source: Source of all data is FactSet, unless otherwise noted.

*The transition level activity taken by Tandem is applicable to new manager-traded accounts and new money in manager-traded accounts, not the composite or firm-wide level. New manager-traded accounts and new money in manager-traded accounts are not automatically invested on the first day. Rather, they are transitioned into our strategy over a longer time period that is dependent upon market conditions, this process differs from Tandem’s model-provided strategies, where money is invested on the day the account opens. Strategy level activity is applicable to the composite and action is taken at the firm-wide level.

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