December 2025 Market Perspective: Bifurcation Continues Amid Rate Cut Expectations

This analysis is based on the December 2025 market perspective published by Seeking Alpha on December 2, 2025 [1], which emphasized the persistence of market bifurcation into November 2025. November performance across major indices underscored this divergence: the S&P 500 (^GSPC) declined 0.48%, the tech-heavy Nasdaq Composite (^IXIC) dropped 2.45%, the Dow Jones Industrial Average (^DJI) remained nearly flat (+0.04%), and small caps (Russell 2000, ^RUT) outperformed with a 0.78% gain [0]. Sector leadership was equally divided: healthcare emerged as the top performer with 5.9% gains (driven by AI integration in medicine and robust post-pandemic elective service demand), while technology slipped 4.4% amid profit-taking after a 29.9% year-to-date gain through October [2]. As December commenced, ETF prices (proxy for index performance) closed lower on December 1: SPY (S&P 500) at $680.27 (-0.46%), QQQ (Nasdaq 100) at $617.17 (-0.34%), DIA (Dow) at $473.32 (-0.81%), and IWM (Russell 2000) at $245.62 (-1.26%) [0]. Key catalysts for the upcoming week include November manufacturing PMI data (China and US, December 1), EU CPI (December 2), ADP employment change and services PMI (December 3), and the Fed’s preferred inflation metric, the Core PCE Price Index (October data, December 5) [3]. The Federal Open Market Committee (FOMC) meeting on December 9-10 carries an 80% market-implied probability of a rate cut, supported by recent dovish comments from Fed officials [4]. Additionally, earnings reports from CrowdStrike (cybersecurity) and Salesforce (CRM) will offer insights into the resilience of enterprise tech budgets [4].

1. Rotation Dynamics
   : The November sector rotation (tech → healthcare) and index performance (small caps > large caps) suggests a shift in investor sentiment from high-growth, AI-focused assets to defensive and domestically oriented securities, possibly driven by profit-taking and anticipation of rate changes [0][2].
2. Fed Policy Impact
   : The 80% rate cut probability is likely buoying small-cap sentiment, as smaller companies are typically more sensitive to interest rate changes due to higher debt burdens [0][4].
3. Tech Sector Vulnerability
   : The tech pullback follows extended gains, and upcoming earnings from CrowdStrike and Salesforce will be critical in determining whether the sector’s correction is temporary or indicative of scaling back 2026 earnings expectations [4].
4. Global Economic Links
   : China’s manufacturing PMI (December 1) and EU CPI (December 2) will provide signals on global economic health, which could further amplify market bifurcation if results deviate from consensus [3].

• Geopolitical Tensions
  : Escalating China-Japan-Taiwan tensions could weigh on global markets, particularly affecting tech and manufacturing sectors with supply chain exposure [5].
• Tech Earnings Guidance
  : Further profit-taking in technology may occur if 2026 earnings expectations are scaled back [2].
• Inflation Surprise
  : Higher-than-consensus Core PCE data (12/5) could reduce the likelihood of a December Fed rate cut, triggering market volatility [3].

• Healthcare Sector Growth
  : Continued gains in healthcare driven by AI integration and post-pandemic demand for medical services [2].
• Small-Cap Outperformance
  : Rate cuts could benefit smaller, domestically focused companies with higher sensitivity to interest rate changes [0][4].
• Defensive Play
  : Defensive sectors like healthcare may offer relative stability amid ongoing market bifurcation [2].

November 2025 market bifurcation persisted with tech pullbacks and healthcare/small-cap gains. December 1 ETF prices reflected continued softness across major indices. Upcoming catalysts include the Core PCE inflation data (December 5), FOMC meeting (December 9-10 with 80% rate cut odds), and earnings from CrowdStrike and Salesforce. Geopolitical tensions and tech earnings guidance risks are notable considerations, while the healthcare sector and small caps present potential opportunities amid market dynamics.