The year 2025 offered a rare mix of solid economic growth, easing inflation, and strong market performance—all unfolding against a backdrop of headline uncertainty. Below is a recap of the major developments that shaped markets and the economy, along with themes that may carry into the new year.

Tech Leadership Drives Equity Gains

U.S. stocks posted broad double‑digit returns in 2025, marking the third year in a row of strength for large‑cap equities. Market gains remained highly concentrated, with technology and AI‑linked companies propelling major indices to or near record levels. The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow added 12.97%. Earnings growth played a central role, particularly among mega‑tech and financial firms, even as performance varied across sectors. International stocks also advanced, with the MSCI All Country World ex‑USA index up 32.4% for the year.

Rates Ease as Bonds Regain Their Footing

The Federal Reserve shifted from a “higher for longer” stance to three quarter‑point rate cuts in 2025. As Treasury yields drifted lower, high‑quality fixed income delivered positive total returns following a challenging period for bondholders. Core bonds resumed their role as diversifiers and income generators, while credit spreads remained relatively calm amid an economy that avoided recession. Caution remains warranted in lower‑quality segments as borrowing costs and a softer labor market present ongoing considerations.

Housing Market Stays Tight Despite Lower Rates

While mortgage rates declined from 6.91% to 6.15% over the year, the drop did little to boost activity. Home prices edged higher—rising about $7,400 to a new median level—as tight supply continued to limit movement. With affordability still strained, households considering a move may need to lean on careful timing and creative financing approaches as rates remain well above pre‑pandemic levels.

Policy Pressures and Global Under‑Currents

Tariffs and rapid technology adoption reshaped parts of the U.S. economy, channeling investment toward AI, automation, and domestic manufacturing while pressuring trade‑exposed industries. Globally, 2025 brought persistent low‑grade tensions rather than a single major crisis. Conflicts, supply‑chain vulnerabilities, and emerging debates around cyber and AI risks contributed to elevated risk premiums. Stress‑testing portfolios and keeping flexibility front‑of‑mind remain important in this environment.

Key Themes That Defined 2025

The economy expanded at a 2% pace, though the benefits were uneven. Research indicates that roughly 60% of GDP growth stemmed from AI‑related investment, with technology sectors continuing to thrive while manufacturing faced challenges and wage growth moderated. Inflation moved closer to the Federal Reserve’s comfort zone, settling in the high‑2% range by year‑end, though tariffs and housing costs added complexity. The Fed responded with three rate cuts, signaling a more measured path ahead.

Markets spent much of the year navigating policy headlines, geopolitical developments, and concentration concerns, especially as a small group of large technology companies drove a significant share of equity gains.

Looking Ahead to 2026

Despite political turbulence and a cooling labor market, moderating inflation and continued earnings growth supported another year of market advancement. As 2026 begins, there are reasons for both optimism and caution. Rising tariffs, persistent deficits, and the maturing AI cycle suggest a need for discipline. Staying diversified and focusing on strong balance sheets, dependable cash flows, and reasonable valuations may position investors well for the year ahead.

For guidance tailored to your financial goals and circumstances, we encourage you to connect with our financial team. We’re here to help you navigate the path forward with clarity and confidence.