Can you believe it’s December already? As we head into the last few weeks of 2025 there’s a compelling setup

for risk assets

taking shape: a potential

United States Federal Reserve

rate cut paired with

Japan’s newly approved fiscal stimulus

. Together, they could

supercharge the yen

carry trade and inject enough global liquidity to

fuel a Santa Claus rally

capping what would be the third consecutive year of

stock market gains

since the 2022 post-COVID correction.

Fed‑funds futures and prediction markets have now swung decisively in favour of a

Fed 25‑basis‑point cut

, with odds recently moving above 80 per cent as the core U.S. producer price index cooled (2.6 per cent year-over-year, below the 2.7 per cent forecast and down from 2.9 per cent in the prior reading) and officials signalled room for “near‑term adjustment.” This was a meaningful change from the coin‑flip probabilities seen earlier last month. Probabilities for a December Fed cut have surged from roughly 25 per cent earlier this month to more than 80 per cent now, driving abrupt repricing in duration-sensitive equities and long-multiple names.

Meanwhile in Tokyo, the cabinet’s 21.3 trillion yen (the equivalent of about $191 billion) stimulus package, paired with repeated signals to lean against disorderly foreign exchange market moves, has kept the U.S. dollar (USD) to Japanese yen (JPY) hovering in the familiar intervention zone. Historically, that’s fertile ground for carry trades and year-end risk-taking, even if occasional verbal warnings jolt markets. Japan’s recent actions create a powerful liquidity dynamic. When USD/JPY trades in the intervention zone, it signals stability and encourages the yen carry trade, which is where investors borrow at ultra-low Japanese rates and deploy capital into higher-yielding assets abroad, often U.S. equities.

This flow amplifies risk appetite globally, especially when paired with a dovish Fed pivot. Historically, such conditions have coincided with strong year-end rallies as institutional investors rebalance and chase performance. Add fiscal expansion from Tokyo towards easier U.S. policy, and you have a synchronized tailwind that reduces funding stress, supports growth sectors, and could extend equity momentum well into 2026.

Near‑term tailwinds, however, meet next‑year crosscurrents. As the U.S. primary season begins, determining which candidates will run in an upcoming general election, markets will have to price a wide range of outcomes for the Fed’s leadership and reaction function, the fiscal trajectory and Treasury supply, and the regulatory stance toward technology and finance. December’s momentum is real, but it is operating against a backdrop where policy direction, distributional pressures, and market plumbing could change materially. Beyond year‑end, humility is therefore the right posture.

One of the most significant medium-term risks facing not just the U.S. but most developed economies that we’re keeping a close eye on is the widening wealth gap. This is more than an economic statistic, it’s a structural fault line that can fuel polarization and instability. Consider the election of a democratic socialist mayor in New York who ran largely on affordability issues. In Mexico, “Gen Z protests” began as youth-led anti-corruption marches but quickly escalated into a nationwide movement. We expect this trend to deepen as the top end of the wealth spectrum continues to accumulate assets at a record pace, while households at the bottom struggle with stagnant wages and rising costs.

Even among the college-educated, the picture is quite troubling. Americans with four-year degrees now account for a record 25.3 per cent of total unemployment (more than 1.9 million workers aged 25 and older), an unprecedented level in data going back to 1992, according to Bloomberg’s analysis of

U.S. Bureau of Labor Statistics

figures. Higher education has long been the ticket to upward mobility; when that promise breaks, frustration spreads across entire demographics, fuelling populism, eroding trust in institutions and increasing the odds of extreme policy swings.

Making matters worse, many young people have tried to play catch-up by

going all-in on cryptocurrencies

, a high-risk strategy that once looked like a shortcut to wealth creation during the boom years. Fuelled by social media hype and fear of missing out, crypto became the lottery ticket for a generation squeezed by stagnant wages and soaring living costs. But the recent sell-off has erased billions in paper gains, leaving many of these younger retail investors underwater and those using leverage completely wiped out.

Layer this on top of concentrated wealth in tech and finance, and you have a recipe for volatility not just in politics, but in markets. These dynamics will shape fiscal priorities, tax policy, and regulatory risk for high-growth sectors. In a world of K-shaped demand, where upper and lower wealth segments diverge, and selective liquidity, process beats prediction.

The bottom line is that no one knows exactly how 2026 will play out whether it’s the AI boom, government debt, Japan’s economy or rising political tensions. But there’s a proven approach that works in uncertain times.

Stick with companies that have strong balance sheets, healthy cash flow and smart spending, not those chasing growth at any cost. In bonds, focus on quality and avoid stretching for yield; a little extra return isn’t worth the risk if credit spreads blow out. Keep an eye on liquidity because easy profits from “carry trades” can vanish overnight. And plan for different policy scenarios such as tax changes, rate shifts or regulatory surprises so you can adjust quickly instead of reacting in panic.

Enjoy the near-term tailwind, but build portfolios to withstand policy swings and stress from widening wealth gaps. That’s how you turn uncertainty into opportunity, whether the Christmas rally arrives wrapped in holiday colours or not.

  • Life and wealth management come down to the same principle: Don’t let pursuing ‘more’ rob you of ‘now’
  • A silent retreat gave me four anchors to help quiet the screams of market headlines and avoid mistakes

Martin Pelletier, CFA, is a senior portfolio manager at Wellington-Altus Private Counsel Inc., operating as TriVest Wealth Counsel, a private client and institutional investment firm specializing in discretionary risk-managed portfolios, investment audit/oversight and advanced tax, estate and wealth planning. The opinions expressed are not necessarily those of Wellington-Altus.

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