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Market Commentary and Trade Rationale
At BlueStem Wealth Partners it is important to us that you are well informed about how we are managing your portfolio. The written commentary below is for the time period ending December 31st, 2025.
Markets finished the year with a familiar mix of resilience and late-December caution. U.S. stocks hovered near record levels even as the final sessions turned choppy, reflecting profit-taking and thinner holiday liquidity more than any single shock. Globally, equities capped another strong year, supported by rate-cut expectations, solid earnings momentum, and continued investment tied to AI-related spending—while concentration in a handful of mega-cap leaders remained a defining feature of index performance.
Borrowing costs eased as cooler inflation met a more cautious Federal Reserve. A downside surprise in inflation, with CPI at 2.7% year-over-year and core CPI at 2.6%1, helped push Treasury yields lower and reinforced expectations for a slower pace of rate cuts in 2026. At the same time, minutes from the Fed’s December meeting revealed meaningful disagreement around the recent quarter-point cut and stressed that any further easing will be data-dependent rather than pre-set. Those moves flowed into housing: as longer-term yields drifted down, the average 30-year fixed mortgage rate fell to roughly 6.15%2, providing a modest tailwind for rate-sensitive sectors.
Overall, the latest U.S. data reinforced the idea that growth is moderating, but the expansion remains intact. The delayed third-quarter GDP report showed the economy growing at a 4.3% annualized pace, supported by consumer spending, though activity appeared to cool into year-end3. At the same time, the labor market continued to lose some steam without showing signs of broad stress: weekly jobless claims slipped to 199,000, layoffs remained historically low4, and the unemployment rate ticked up to 4.6% in November amid slower hiring5. Taken together, the picture points to a late-cycle slowdown rather than an abrupt break, raising the new year’s key question: how smoothly inflation can keep easing as growth and jobs gradually cool.
The bottom line: The market closed the year pricing a “cooling-but-still-growing” baseline: inflation appears to be easing, the labor market is loosening gradually, and policy is shifting from restrictive toward more neutral, though not without debate. The key swing factors heading into the new year are whether disinflation continues without a sharper slowdown in jobs, and whether the rally broadens beyond the crowded themes that drove 2025’s gains.
Recent Trade Rationale: If you would like to see a high-level recap of recent changes to the model portfolios, please click on the link to read the January 2026 Trade Rationale. As a reminder, we utilize quantitative techniques to manage the models. Level Elements are designed to manage your model’s equity and fixed income exposure over time. This changes as fundamental, quantitative, and economic data changes. Style Elements are designed to manage what is in those equity and fixed income exposures.
All opinions expressed in this commentary are for general informational purposes and constitute the judgment of the author(s) as of the date of the report. These opinions are subject to change without notice and are not intended to provide specific advice or recommendations for any individual or on any specific security. The material has been gathered from sources believed to be reliable; however, BlueStem Wealth Partners cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This commentary is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through BlueStem Wealth Partners are only offered where BlueStem Wealth Partners and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. The material provided is for informational purposes only and is not meant to be a solicitation or recommendation to buy/sell any security. BlueStem Wealth Partners is an investment advisory firm registered with the Securities and Exchange Commission (“SEC”). SEC registration does not imply a certain level of skill and or expertise.