CME Group Analysis: Assessing the Growing Gap Between Soaring Stocks and Economic Reality
Chicago, Wednesday, 17 December 2025.
With inflation persisting at 3%, experts warn the divergence between AI-driven stock gains and economic fundamentals suggests the gap between investor sentiment and reality is reaching a critical inflection point.
The Inflation and Labor Puzzle
A central component of this economic paradox is the persistence of inflation relative to the nation’s growth trajectory. Currently, the U.S. economy is experiencing slow growth while inflation remains stubborn at 3%, a figure that is 1% higher than the Federal Reserve’s established target [1]. Erik Norland, Chief Economist at CME Group, emphasizes that this deviation from the target is the most significant narrative in the current landscape, creating a friction point between monetary policy and market performance [1]. Simultaneously, the labor market presents a volatile variable; while the economy has witnessed a period of slower hiring, the critical uncertainty lies in whether this trend will deteriorate into increased firing [1]. Cameron Dawson, CIO of NewEdge Wealth, identifies this potential shift from slow hiring to active job losses as the most critical question facing the economy as it moves toward 2026 [1].
The AI Divergence
Investors appear to be looking past these macroeconomic headwinds, largely due to the concentrated strength of the technology sector. The analysis highlights a stark divergence between the market capitalization-weighted S&P 500 and the equal-weight S&P 500, a disparity driven primarily by a handful of companies benefiting from Artificial Intelligence (AI) and significant capital expenditures [1]. As Dawson notes, this specific data point illustrates that “the market is not the economy,” revealing how top-heavy indices can mask broader economic cooling while sustaining a bull market narrative [1].
Historical Parallels: 1995 or 1973?
Forecasting the path forward involves examining two distinct historical precedents that offer conflicting outcomes. Optimists point to the mid-1990s, specifically 1995 and 1996, when a cooling economy coexisted with a resilient stock market; in 1995 alone, the market surged over 30%, followed by a further 25% gain in 1996 [1]. However, Norland warns that the current environment, with inflation running above target, bears a troubling resemblance to the early 1970s [1]. During that period, easy monetary policy amidst an expanding economy eventually triggered severe inflation in 1973 and 1974, a risk that remains pertinent today as the Federal Reserve navigates its current policy stance [1].
Market Activity Remains Robust
Amidst this uncertainty, market participation remains historically high, suggesting traders are actively utilizing derivatives to hedge these complex risks. In November 2025, CME Group reported its second-highest monthly average daily volume (ADV) of 33.1 million contracts, indicating sustained engagement from market participants [2]. Furthermore, the marketplace continues to expand its instrument offerings to meet evolving demand, having launched Spot-Quoted XRP and SOL futures in mid-December [3], and announcing plans for 24/7 prediction markets later this month to allow traders to speculate on economic indicators directly [4].