Slide 1: Title — Student of the Market: December 2025
Welcome to the December 2025 edition of 'Student of the Market.' In this presentation, we'll review the latest market trends, investor sentiment, and the key drivers shaping portfolios as we close out the year.
Slide 2: Dec SOTM Overview
Here's what we'll cover today:
- The ongoing winning streak in U.S. stocks
- The impact of consumer sentiment and political polarization on markets
- The 'Magnificent Seven' stocks and their influence
- Emerging market dynamics, including fund flows and index differences
- And finally how asset classes respond to Federal Reserve rate cuts
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Slide 3: U.S. Stocks' Winning Streak
Let's start with U.S. equities.
U.S. stocks posted a seventh straight month of gains in November—the longest streak since 2021. Historically, such streaks have often been followed by strong 12-month returns.
For context, the average winning streak since 1926 is a little bit more than 5 months, with an average return of +10.5%. Notably, there have only been two 15-month streaks: March 1958 to May 1959, and November 2016 to January 2018.
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The data shows that prolonged monthly streaks have tended to coincide with stronger-than-average market performance. However, it's important to maintain humility, as historically these streaks do not persist indefinitely.
Slide 4: Consumer Sentiment Near Record Lows
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Despite the stock market's strength, consumer sentiment remains near record lows. This disconnect often fuels concerns that the bull market is overextended. However, history suggests the opposite: periods of weak sentiment have typically preceded strong equity returns.
For instance, following major sentiment troughs—when survey readings were in the 50s or 60s (examples of this are in November of 2008 or July of 2022)—U.S. stocks have returned an average of about 18% over the subsequent 12 months. In contrast, when sentiment peaked in the 110s (like in January 2001), forward 12-month returns averaged roughly 0%.
This pattern underscores the value of staying invested and maintaining a contrarian mindset (and this means not following the herd), particularly when sentiment appears most pessimistic.
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Slide 5: Politics and Your Portfolio
Let's turn to politics and your portfolio- always a popular topic around the holiday dinner table.
We're seeing a record-level partisan divide in consumer sentiment and market expectations. Policy shifts under the new administration have only amplified these differences.
In October 2025, the gap in consumer sentiment between Democrats and Republicans hit an all-time high of 61. While sentiment has long tended to vary depending on which party holds office, today's divide is unprecedented. It's a reminder to stay humble and recognize the extent to which our political beliefs may be shaping our views of the economy and markets—often more than we realize.
The key takeaway is simple: keep politics out of your portfolio. Emotional reactions to political events can lead to costly investment mistakes. Stay focused on long-term fundamentals, not headlines.
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Slide 6: The Magnificent Seven in 2025
Turning to market leadership, the so-called 'Magnificent Seven' tech stocks—Amazon, Tesla, Alphabet, Meta, Apple, Nvidia, and Microsoft—have driven much of the S&Ps returns in recent years.
However, in 2025, only two of these stocks outperformed the S&P 500 year-to-date. Returns within the group have varied widely, underscoring the importance of diversification.
While these companies remain influential, relying solely on a handful of names can increase portfolio risk.
Slide 7: Emerging Market Stocks and Fund Flows
Switching gears to emerging market stocks which have been a bright spot in 2025, up 30% year-to-date.
Interestingly, this strong performance comes despite negative fund flows in EM stock mutual funds and ETFs over the past 12 months. Historically, periods of outflows have often preceded strong forward returns.
This suggests that investor sentiment and flows can lag fundamentals, potentially creating opportunities for disciplined investors.
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Slide 8: Emerging Market Index Differences
Now on the emerging markets index side not all emerging market indices are created equal.
There are significant differences between major indices, largely due to country and sector weights. For example, the inclusion of South Korea in the MSCI EM index drives a notable performance gap compared to the FTSE Emerging Index.
It's important to understand your benchmark, as index composition can meaningfully impact returns.
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Slide 9: Active vs. Index Performance
Now let's compare active management with index investing.
While the popular narrative often overlooks instances where active managers outperform, the past year has shown notable strength—particularly in fixed income. More active managers have outperformed their benchmarks in bond categories than in equities. For example, roughly 80% of intermediate core-plus bond managers beat their index, compared with less than 20% of U.S. large-growth equity managers year-to-date in 2025.
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This reinforces an important point: the value of active management varies across asset classes and market environments. It's not a matter of choosing active or index strategies exclusively but rather using both thoughtfully to achieve the best overall outcome.
Slide 10: Fed Rate Cuts and Asset Class Returns
Lastly, let's look at how different asset classes respond to Federal Reserve rate cuts. Got a couple rate cuts here recently.
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Historically, when the Fed lowers rates and the economy avoids recession, performance across stocks, bonds, and alternatives has been notably strong.
For example, following non-recessionary rate cuts in 1989, 1995, 1998, and 2024, the subsequent 12 months delivered broad-based gains, including solid results in alternative investments.
In contrast, when rate cuts occur alongside a recession, returns tend to be far weaker, especially for equities. This distinction underscores the importance of understanding the economic backdrop when evaluating the impact of Fed policy on portfolio performance.
Slide 10: Closing — The State of the Market
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Thank you for listening. I hope this overview provides greater clarity and confidence as you navigate today's market environment.
2025 has been a rare year in which almost everything worked—stocks, bonds, and alternatives all delivered positive results. Despite that strength, skepticism about the durability of this bull market remains high, which historically has often signaled further room to run. Meanwhile, the Fed is cutting rates, yet the economy continues to grow—an encouraging backdrop for most asset classes. We believe this momentum is likely to carry into 2026.
As we look ahead, the key will be balance: staying invested while remaining selective.
Thanks for tuning in to BlackRock's Student of the Market. I'm your host, Mark Peterson—and we'll see you next month.
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