The Chicago Fed National Activity Index for the United States came in at -0.21 for December.
The previous reading was -0.04.
Economic Growth Signals Turning Lower
The Chicago Fed National Activity Index’s drop to -0.21 in December 2025 signals a clear cooling of the U.S. economy. This figure, indicating below-average growth, suggests we should anticipate continued economic softness into the first quarter of 2026. We are now positioning for increased market volatility and defensive posturing.
This perspective is reinforced by the January 2026 jobs report, which saw nonfarm payrolls add only 145,000 jobs, missing expectations and marking the slowest growth in over a year. At the same time, we’ve seen initial jobless claims trend up slightly in recent weeks, averaging around 230,000. These data points confirm the slowdown we saw developing at the end of 2025 is carrying over into the new year.
In response, we should consider buying put options on major stock indices like the S&P 500. This provides a direct hedge against a potential market downturn driven by weakening economic fundamentals. These positions will gain value if the market pulls back as investors digest the slowing growth.
The likelihood of the Federal Reserve pausing or even signaling future rate cuts has increased. We’ve seen yields on the 10-year Treasury note fall nearly 25 basis points over the past month to 3.65% as traders anticipate a more dovish stance. We should look at derivatives that profit from falling interest rates, such as call options on Treasury bond futures.
We are also anticipating a rise in market volatility from its current relatively subdued levels. The VIX index, hovering around 17, does not seem to fully price in the economic uncertainty ahead. Buying VIX call options offers an efficient way to hedge against a sharp increase in market turbulence.
Looking back, we saw similar patterns in the index during the economic slowdowns of 2015 and 2019, which preceded periods of market choppiness and a dovish Fed pivot. While the current index level of -0.21 is not yet indicating a recession, the negative momentum from late 2025 is a clear warning sign. It is prudent to adjust our derivative exposures for a weaker growth environment in the weeks ahead.
