A Year of Steady Progress
As we closed 2025, the economy delivered a rare combination of steady growth, easing inflation, and strong market performance. Despite frequent headlines highlighting uncertainty, the broader picture reflected consistent progress, even if it didn’t always follow a straight path.
Tech Leadership Drives Equity Gains
U.S. stocks posted another year of broad double‑digit gains, with large‑cap equities extending their multi‑year momentum. Performance remained concentrated, as technology and AI‑linked companies continued to lead major indices higher. The S&P 500 climbed 16.39%, the Nasdaq 100 gained 20.17%, and the Dow added 12.97%. International stocks also advanced, with global ex‑U.S. equities rising sharply.
Much of the market’s rise came from companies earning more money rather than investors paying higher premiums. Results varied across sectors, reinforcing the importance of careful selection.
Rates Move Lower, but Housing Stays Tight
The Federal Reserve shifted from its “higher for longer” stance by implementing three rate cuts, easing its restrictive policy from earlier in the year. Treasury yields drifted lower, offering fixed‑income investors relief after a challenging stretch. Core bonds resumed their traditional role as diversifiers and income generators, while credit spreads stayed relatively stable.
Housing, however, told a different story. Mortgage rates pulled back from 6.91% to 6.15%, but the improvement wasn’t enough to unlock meaningful activity. Home prices rose modestly, and affordability challenges persisted, leaving many households navigating a complex environment.
Trade Policies and Global Tensions Shape the Landscape
Tariff changes and rapid advances in technology shifted parts of the U.S. economy by channeling investment toward AI, automation, and domestic manufacturing. Some trade‑exposed and consumer‑focused industries felt the squeeze as these trends accelerated.
Geopolitically, 2025 brought steady underlying tensions rather than a single defining event. Conflicts, supply‑chain vulnerabilities, and debates surrounding cyber risks and AI governance contributed to elevated risk premiums throughout the year. Maintaining flexibility and preparing for multiple scenarios remained essential.
Core Themes That Defined 2025
The economy grew at a 2% pace, avoiding recession but revealing unequal outcomes among industries. AI‑driven sectors and large technology companies continued to thrive, while manufacturing softened and wage growth eased. Consumer prices settled into the high‑2% range, though tariffs and housing costs created a bumpy path toward the Federal Reserve’s inflation goals.
Markets also navigated recurring volatility from policy debates, shutdown concerns, and global pressures. Once again, a handful of large technology companies accounted for much of the market’s progress, highlighting both opportunity and concentration risk.
Looking Ahead to 2026
As we enter 2026, we see a mix of encouraging trends and areas that call for caution. Positive earnings growth and moderating inflation helped power markets through a year of headline‑driven uncertainty. Still, rising tariffs, ongoing deficit spending, and a maturing AI investment cycle underscore the importance of discipline.
Investors focused on diversification, strong balance sheets, and stable cash flows may be better positioned as the year unfolds.
If you have questions about how these developments may affect your financial strategy, we encourage you to reach out to our financial team for personalized guidance and support.