Model Portfolio Pulse: Key risks and positioning for year-end
December 18, 2025
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3 min
As 2025 draws to a close, the U.S. economy continues to defy expectations, supported by strong consumer spending and robust artificial intelligence (AI)-driven capital investment. While labor market signals remain mixed, overall conditions are steady enough to sustain modest growth. Against this backdrop, Natixis model portfolios remain constructive on risk assets, reflecting rising earnings estimates, a supportive Federal Reserve (the Fed), and positive seasonality. Positioning is unchanged from last month, with a modest equity overweight and a tilt toward growth and emerging markets (EMs).
Key takeaways
- U.S. economy remains steady with growth led by AI-related capital expenditures (CapEx) and strong consumer spending.
- Labor market shows mixed signals with job losses in Automatic Data Processing (ADP) data but strong jobless claims pointing to supply constraints.
- The Fed cut rates on December 10, with a long pause likely before the next move.
- Model portfolios maintain overweight in equities vs. bonds with a tilt toward growth and EMs.
U.S. economy shows resilience despite labor market uncertainty
The U.S. economy continues to outperform expectations, driven by AI-related capital expenditures and steady consumer spending. Black Friday sales exceeded forecasts, reinforcing confidence in consumption as we head into 2026. However, labor market data paints a nuanced picture:
- The ADP survey showed a weak reading with job losses of 32,000 in November.
- Conversely, initial jobless claims fell below 200,000 in early December, signaling strength.
This divergence suggests that slowing in the labor market may reflect tight labor supply rather than weak hiring demand. For now, we remain in a “no-hire, no-fire” environment, which is sufficient to keep consumption growing modestly.
Fed policy and global yield trends
The December Federal Reserve meeting was a key market event. Market pricing strongly favored another rate cut, and we expected the Fed to deliver. However, this could mark the last cut for several months, with the next move likely delayed until summer 2026. A prolonged pause would reshape expectations for both equity and fixed income markets.
If the Fed goes on hold while the economy remains resilient, U.S. bond yields likely have limited downside, especially as global yields rise. Japanese government bonds, for example, are at levels not seen since 2007, creating competitive pressure on U.S. Treasuries in global capital markets.
Risks that could shift the outlook
Our risk radar remains focused on two critical factors:
- Labor market health: Sustained job losses would undermine growth.
- AI CapEx momentum: A slowdown here could weigh heavily on economic prospects.
While some view a Fed pause as a risk, we’re more concerned about any future pivot back to rate hikes, which currently seems distant.
Natixis model portfolio positioning
Our portfolios remain constructive on risk assets, supported by rising earnings estimates, a dovish Fed, and seasonal tailwinds. However, rich valuations and tight credit spreads temper enthusiasm. Positioning themes include:
- Overweight equities vs. fixed income
- Growth tilt over value stocks
- Overweight emerging markets stocks
- Slight overweight U.S. stocks
- Underweight developed international stocks
- Overweight EM USD-denominated government bonds
- Neutral duration in fixed income
We favor EMs given loose global financial conditions and Fed easing, with many EM firms (especially in South Korea and Taiwan) participating in the AI boom. U.S. equities remain attractive, led by technology and AI plays with strong earnings growth. Developed international equities face more modest growth prospects, and Japanese stocks have already priced in optimism post-election. In bonds, we maintain neutral duration, expecting yields to remain range-bound unless the economy weakens dramatically.
