By Ahmad Assiri Research Strategist at Pepperstone
Equity markets entered December with noticeably less enthusiasm than anticipated particularly in the US, where stocks have so far failed to replicate the seasonal factor and sustained rally that seen much of the year. This subdued equity performance, when contrasted with the standout strength seen across precious metals, has begun to assert itself forcefully in cross asset allocation discussions. The widening divergence between equities and commodities is no longer just a tactical consideration, it has evolved into a meaningful driver of capital allocation decisions within multi asset portfolios.
At the centre of this shift, US labour market data for October and November added clarity, and concern, to the broader macro picture. Headline NFP showed an increase of 64k jobs in November, a reading that exceeded conservative expectations. However, this figure cannot be viewed in isolation. October numbers were sharply lower, revealing a contraction of 105k jobs largely attributable to a loss of approximately 175k government positions following the shutdown. When these readings are combined, the three month average pace of job growth slows to around 22k, underscoring a deceleration in labour market momentum.
Broader measures of labour market slack reinforced this assessment. The unemployment rate rose to 4.6% exceeding expectations and marking a cycle high, while the participation rate edged slightly higher. Crucially, November job creation was almost entirely driven by the healthcare sector which added around 65k jobs, leaving little evidence of meaningful expansion across other sectors. This concentration weakens the quality of employment growth and suggests that job creation isn’t broad-based across the US economy.
This backdrop is particularly notable given that the Federal Reserve has already delivered around 200bp of rate cuts in an effort to cushion the labour market and support economic activity. Despite this policy easing, the data indicate that unemployment continues to drift higher, forcing markets to reprice a more persistent and cautious unemployment trajectory.
Market reactions reflected this more restrained interpretation. US Treasury yields edged lower, the US dollar slipped to an intraday low below the 98 level, while equities recorded only modest and narrow gains before closing lower by the end of the session. The price action suggests investors are increasingly reluctant to add risk, even as the familiar bad news is good news narrative for valuations continues to linger. In rates markets, expectations remained largely stable, with swaps still implying a one-in-four chance of a rate cut in January.
This is where the broader cross-asset transition becomes more evident. As equity momentum fades and macro risks become increasingly asymmetric, portfolio construction debates for 2026 are shifting toward whether precious metals warrant a larger structural allocation rather than a tactical role. The strong performance of gold and silver has reinforced the role of metals as a diversification tool in environments marked by potentially slowing growth and stretched valuations in risk assets.
The message from the latest data is increasingly pronounced. A weaker labour market threatens consumer spending, softer consumption places pressure on corporate earnings and all of this unfolds at a time when equity valuations, particularly in the US tech, appear tight, leaving little margin for disappointment. After a year of near-perfect growth pricing, markets appear to be approaching a ceiling for optimism as 2026 approaches, where negative data surprises may carry greater pricing consequences.
In this context, it has become increasingly difficult for Wall Street to rely on the traditional 60/40 framework. Precious metals are forcing their way into core asset allocation, not merely as hedges, but as a fundamental component in a broader reassessment of diversification at this stage of the economic cycle.
From a forward-looking perspective, the balance of risks continues to favour another constructive year for metals, alongside more subdued equity performance. Levels near 7,000 on the broad US equity index appear reasonable for the first quarter, as investors wait to gain clearer visibility on consumer spending trends and the outlook for earnings growth. While these levels may align with current valuations, they fall well short of the outsized returns seen in 2024 and 2025.
In short, the latest employment report should not be viewed as a single monthly data point, but rather as part of a cumulative narrative. A controlled slowdown in the labour market, fading seasonal equity momentum and the persistent ascent of precious metals all suggest that the next phase for markets may be less generous to risk assets and increasingly sensitive to cross asset risk management.