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- Recent unemployment claims data indicate that layoffs remain low, showing the labor market stayed resilient last week despite slower hiring trends.
- Falling yields and a growing income advantage may have contributed to investment-grade bonds performing well compared to cash last week, and this trend could potentially continue if short-term rates move lower.
- Recent gains in home prices and sales activity, alongside easing mortgage rates, suggest the housing market may be stabilizing.
1. Labor Market Remains Steady Despite Slower Hiring
Recent labor market data released last week suggest that conditions remain stable, even as hiring has cooled compared to early 2025. Slower growth in nonfarm payrolls and a modest rise in the unemployment rate have raised questions about whether job conditions are weakening. However, the latest unemployment insurance data point to continued resilience rather than broad stress.
Initial claims for unemployment benefits declined to 199,000 last week, marking one of the lowest readings since 2025.1 While weekly figures can fluctuate around the holidays, broader measures tell a similar story. The four-week moving average of initial claims, a longer-term indicator that helps reduce short-term noise, held near 220,000 and remains well below levels typically associated with rising layoffs.1 In addition, continuing claims, which track the number of people receiving ongoing benefits, have moved lower in recent weeks.1 This trend suggests that workers who lose jobs are generally finding new positions without extended delays.
Taken together, these indicators imply that layoffs remain limited and that the labor market continues to show underlying strength as the year begins.
2. Investment-Grade Bonds Regain an Edge Over Cash
After several years of lagging cash, U.S. investment-grade bonds gained roughly 7.5% in 2025, outperforming cash by more than three percentage points.2 This marks the widest gap between cash and bond performance since 2020. The shift has been supported by a broad decline in Treasury yields across most maturities, following 0.75 percentage points in Federal Reserve rate cuts and signs of labor market cooling.2 Lower yields have translated into higher bond prices, boosting total returns.
Income has also played an important role. Investment-grade bonds currently offer yields about 0.7% higher than cash, placing the spread near the top of its three-year range.3 This yield advantage has meaningfully contributed to bond outperformance. Looking ahead, expectations for one or two additional rate cuts in 2026 could weigh on short-term rates and reduce the appeal of cash holdings. At the same time, steady economic growth and ongoing budget deficit pressures may limit declines in longer-term yields. This environment could allow the yield gap to widen further, supporting continued relative strength in investment-grade bonds.
3. Housing Data Points to Early Signs of Stabilization
Housing market data released last week suggest conditions may be stabilizing after a period of irregular activity. The Federal Housing Finance Agency home price index rose 0.4% in October, following declines in four of the previous six months.4 The gain exceeded expectations and represented the strongest monthly increase since January 2025.4 These price measures followed encouraging news earlier last week, as pending home sales climbed to their highest level since February 2023.2
Financing conditions have also improved modestly. Mortgage rates remain high by recent standards but have eased from above 7% at the start of 2025 to roughly 6.5%.5 This decline may help support buyer interest that had been sidelined by higher borrowing costs. Residential investment has been a drag on overall economic growth, contracting in five of the past six quarters.2 If lower mortgage rates persist, improved housing activity and a gradual recovery in residential investment could modestly support economic growth in 2026.
For the period ending 1/2/25.
* Small-cap stocks are represented by the Russell 2000® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.
Sources
1 U.S. Department of Labor
2 Reuters
3 Bloomberg
4 U.S. Federal Housing Finance Agency
5 Barrons
Disclosures
Cary Street Partners is the trade name used by Cary Street Partners LLC, Member FINRA/SIPC; Cary Street Partners Investment Advisory LLC and Cary Street Partners Asset Management LLC, registered investment advisers. Registration does not imply a certain level of skill or training.
Any opinions expressed here are those of the authors, and such statements or opinions do not necessarily represent the opinions of Cary Street Partners. These are statements of judgment as of a certain date and are subject to future change without notice. Future predictions are subject to certain risks and uncertainties, which could cause actual results to differ from those currently anticipated or projected.
These materials are furnished for informational and illustrative purposes only, to provide investors with an update on financial market conditions. The description of certain aspects of the market herein is a condensed summary only. Materials have been compiled from sources believed to be reliable; however, Cary Street Partners does not guarantee the accuracy or completeness of the information presented. Such information is not intended to be complete or to constitute all the information necessary to evaluate adequately the consequences of investing in any securities, financial instruments, or strategies described herein.
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We undertake no duty or obligation to publicly update or revise the information contained in these materials. In addition, information related to past performance, while helpful as an evaluative tool, is not necessarily indicative of future results, the achievement of which cannot be assured. You should not view the past performance of securities, or information about the market, as indicative of future results.
A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
Nothing contained herein should be considered a solicitation to purchase or sell any specific securities or investment-related services. It should not be assumed that any of the securities transactions or holdings discussed were, or will prove to be, profitable.
The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
Additional Disclosures: International and Foreign Securities, Fixed Income Investments, the Consumer Price Index, the Producer Price Index.
Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_01
