By Rick Schwerd | December 19, 2025

Our investment team remains committed to sharing updates and market insights to keep you informed. Please look for our next update on January 9.

Markets Remain Wobbly

Stocks have lacked clear direction following the April through late October rally, which briefly saw the S&P 500 top 6,900. Several factors have weighed on markets over the last couple of months, including the government shutdown and subsequent lack of economic data, valuation concerns and skepticism surrounding the Artificial Intelligence (AI) trade.

Given the strong run earlier this year, it can be healthy for markets to take a breather and trade sideways for a period of time. We continue to believe that underlying metrics support positive stock returns. Company earnings expectations remain strong, the Fed is cutting interest rates, stimulus from the Big Beautiful Bill is set to hit early next year, inflation remains largely in check despite running slightly above the Fed’s target and productivity continues to improve.

Are Equities in a Bubble?

We often hear prognosticators and others question whether equities are in “bubble” territory. A healthy level of skepticism is understandable. During the last 25 years, we have navigated through the Dot Com Bubble, the Great Financial Crisis, Covid and the inflation-induced bear market of 2022. It is natural for investors to remain cautious. That said, we do not believe the market is currently in the midst of a bubble.

Valuations from a price-to-earnings ratio (PE) are near the upper end of their historical range. However, the S&P 500 is dominated by high-growth companies that typically trade at higher PE ratios, compared to earlier periods when industrial, energy and financial companies, which traded at lower PE ratios, made up a greater share of the index. The fact is the PE ratio of the S&P 500 is slightly lower than it was last year at this time and earnings expectations are improving.

While we are not overly optimistic and given valuations are elevated, we do not expect a blowout year in 2026. However, we see no reason why equities cannot have another solid year of performance.

Decent Economic News

Labor market data for October and November were released this week. October results were weak as expected, with a loss of 105,000 jobs, largely due to DOGE-related Federal Government job cuts. November payrolls rebounded more than anticipated to positive 64,000 jobs. The unemployment rate climbed to 4.6 percent, signaling a soft labor market, but not one in a sharp downturn.

Overall, retail sales data was better than expected. Yesterday’s Personal Consumption Expenditures (PCE), the Fed’s preferred inflation measure, declined from 3 percent in September to 2.7 percent in November. Some distortion in economic data may persist due to the government shutdown, so next month’s economic data should paint a clearer picture.

Happy Holidays!

We wish you a very happy holiday season! Thank you so much for working with us. It’s truly an honor and a privilege to serve the individuals, companies and organizations that make our communities such a great place to live. We wish you a healthy and prosperous New Year!

As always, if you have any questions or concerns regarding markets or your financial planning needs, please reach out to us at (518) 415-4401.

About the Author: With almost three decades of financial industry experience, Rick serves as a Senior Investment Officer at Arrow Bank, formerly named Glens Falls National Bank and Saratoga National Bank. He oversees individual and corporate retirement plans, personal trusts, investment management accounts, foundations and not-for-profit relationships.