A stronger‑than‑expected U.S. economy, a surprise delay in tariffs on Chinese semiconductors and fresh record highs for the S&P 500 are setting the tone for markets heading into the final days of 2025. Yet beneath the upbeat headlines lies a more complicated picture of cooling job growth, anxious consumers and mounting geopolitical risk. This mix of signals is the backdrop for CNBC’s latest Morning Squawk rundown, as investors try to work out whether the current rally can last.

Image Illustration. Photo by Wolfgang Weiser on Unsplash

Growth Surprise: U.S. Economy Revs to 4.3% in Q3

After months of data delays caused by a government shutdown, the Commerce Department finally released its initial estimate for third‑quarter growth — and it came in well above economists’ forecasts. Real U.S. gross domestic product rose at an annualized rate of 4.3% in Q3 2025, up from 3.8% in the second quarter and the fastest pace in roughly two years, according to the Bureau of Economic Analysis.

The BEA said the expansion was driven by robust consumer spending, higher exports and increased government outlays, partially offset by weaker business investment. Consumer spending — which accounts for about two‑thirds of U.S. economic activity — grew at a 3.5% annualized rate in Q3, up from 2.5% in Q2, with gains in both goods and services spending.

Corporate America is sharing in the upside. Profits from current production — a broad measure of corporate profits — increased by about $166 billion in the third quarter compared with a roughly $7 billion gain in Q2, underscoring why equity markets have been willing to look past political turmoil and a bumpy start to the year.

A Booming Economy That Still Feels Uneasy

Despite the strong headline growth numbers, many Americans remain skeptical that the economy is working for them — a disconnect that recent opinion pieces and polling have tried to explain. While GDP has accelerated, job creation has slowed from its post‑pandemic pace, and higher borrowing costs continue to squeeze households. Consumer confidence has fallen for several consecutive months, with December marking the fifth straight decline, according to recent survey data cited by economists tracking the recovery.

At the same time, inflation remains above the Federal Reserve’s 2% target. The BEA’s report shows the personal consumption expenditures (PCE) price index running at 2.8% in Q3 and the core PCE index at 2.9%. That leaves the Fed balancing stubborn price pressures against signs of a softening labor market heading into 2026, complicating the timing of further interest‑rate cuts.

Washington Hits Pause on New Chip Tariffs

One of the most market‑moving headlines in recent days came from trade policy rather than macro data. The Trump administration has decided to delay new tariffs on Chinese semiconductors until 2027, according to a notice from the Office of the U.S. Trade Representative reported by the Wall Street Journal. The tariffs, which stem from an inquiry first launched under the Biden administration into China’s dominance in older‑generation chips, will stay at zero for 18 months and then rise in June 2027 to a still‑unspecified rate.

The move comes after a tense year in U.S.–China relations and follows an October truce between President Donald Trump and President Xi Jinping that included some tariff rollbacks and a Chinese pledge to tighten controls on fentanyl precursor exports. The delay buys time for U.S. chipmakers and downstream industries such as autos, consumer electronics and telecommunications, which rely heavily on mature‑node chips produced in China and elsewhere in Asia.

Semiconductors remain at the center of a broader contest for technological and strategic advantage. Policymakers worry that China’s grip on legacy chips used in vehicles, military systems and industrial equipment could be leveraged in future crises. But an abrupt tariff shock risked disrupting supply chains just as companies are investing billions in new U.S. fabrication plants under the CHIPS and Science Act. The delay suggests the administration is trying to balance national‑security concerns with the risk of renewed inflation and manufacturing slowdowns at home.

Wall Street Sets a New S&P 500 Record

Financial markets have responded to the combination of stronger growth and reduced near‑term trade tension with a late‑year rally. On December 24, the S&P 500 closed at a new all‑time high of 6,932.05, according to data compiled by S&P Dow Jones Indices and summarized by market analysts.

Major U.S. benchmarks have been climbing for days. On Christmas Eve, both the S&P 500 and the Dow Jones Industrial Average finished at record highs, with the S&P up about 0.3% and the Dow gaining roughly 0.6% on the day. The nascent “Santa rally” has been fueled by optimism that interest‑rate cuts will continue in 2026 and that an artificial‑intelligence investment boom can sustain corporate earnings growth.

The S&P 500’s surge caps a remarkable multiyear run. After first crossing 5,000 in February 2024 and 6,000 in November 2024, the index has now added nearly another 1,000 points in just over a year — a pace that historically has not been sustainable for long periods.

Why Markets Are Up Even as Sentiment Lags

The rally in stocks has occurred alongside unusually low volatility. The Cboe Volatility Index, or VIX, recently dipped below 14, its lowest level since late 2024, according to market data tracked by options exchanges and financial news outlets. That suggests investors are pricing in a relatively smooth path for earnings and monetary policy — even as political risk and geopolitical tensions remain elevated.

One key reason markets have stayed buoyant is that corporate profits have outpaced the broader economy. While real GDP is now growing near 4%, the profit rebound has been even stronger, helped by cost cuts, automation and a surge in productivity linked to AI‑related investments. The BEA’s preliminary figures show corporate profits jumping by more than $160 billion in Q3 alone, giving companies room to boost buybacks and dividends even as wage growth cools.

The Risks Lurking Behind the Rally

Still, the Morning Squawk snapshot underscores that this is hardly a risk‑free environment. Economists warn that growth is likely to slow in the fourth quarter to around 2% as the effects of the shutdown, earlier tariff shocks and tighter credit conditions filter through to businesses and consumers, according to projections cited in recent coverage of the delayed GDP report.

Internationally, several major economies are already losing momentum. The OECD reports that overall GDP growth across its members slowed to 1.5% year‑on‑year in Q3, with Germany and Italy registering zero quarterly growth and Japan slipping into contraction. A weaker global backdrop could weigh on U.S. exports just as domestic demand cools.

What to Watch in Early 2026

For investors following CNBC’s Morning Squawk and similar pre‑market briefings, the next few months will be about separating signal from noise. Key questions include whether the Fed will be able to continue cutting rates without reigniting inflation, how quickly new U.S. chip plants can come online as tariff policy evolves, and whether the recent profit boom can withstand a slower global economy.

For now, the data tell a story of an economy that is growing solidly on paper, a stock market hitting fresh records and a public still unsure how long the good news can last. That tension — between strong aggregates and fragile sentiment — is likely to define the outlook as 2026 trading begins.