Tech Strength Shaped Market Gains

The past year delivered a combination not often seen: steady economic growth, cooling inflation, and strong equity performance, even as headlines highlighted persistent uncertainty. U.S. stocks posted broad double‑digit gains, marking the third straight year of strength for large‑cap equities. Market leadership remained highly concentrated, with technology and AI‑focused companies lifting the major indices toward or near record levels. Earnings growth—particularly from mega‑cap tech and financial names—played a central role in driving returns.

The S&P 500 climbed 16.39%, the Nasdaq 100 gained 20.17%, and the Dow rose 12.97%. International equities also advanced, with the MSCI All Country World ex‑USA Index up 32.4%. Performance varied across sectors, highlighting the importance of selectivity as conditions evolved.

Bond Markets Stabilized as Rates Shifted Lower

Interest rates moved meaningfully lower in 2025 as the Federal Reserve implemented three quarter‑point cuts, shifting away from a “higher for longer” stance. Treasury yields trended down throughout the year, with the 10‑year rate settling in the low‑4% range by December. For bond investors, this brought a welcome return to positive total returns and a renewed sense of stability. Core fixed income regained its traditional role in portfolios, while credit conditions stayed relatively calm amid an economy that avoided recession.

Housing, however, remained restrained. Mortgage rates eased from 6.91% to 6.15%, but activity showed little improvement. Home prices increased about $7,400, reinforcing that elevated rates can freeze movement in the market more than they reduce costs for buyers. Affordability challenges persisted, and households considering a move continued to weigh timing and financing options carefully.

Policy and Geopolitics Added a Persistent Backdrop

Tariffs and technological change reshaped parts of the U.S. economy throughout the year, directing investment toward areas such as AI, automation, and domestic manufacturing. At the same time, geopolitical tensions simmered rather than spiking into a single defining event. Ongoing conflicts, supply‑chain vulnerabilities, and emerging questions around cyber risks and AI governance contributed to elevated risk considerations. In this environment, stress‑testing portfolios and maintaining flexibility remained essential.

Mixed Economic Signals with Clear Underlying Themes

The U.S. economy expanded at a 2% pace in 2025, though the benefits were uneven. AI‑related activity played an outsized role, accounting for roughly 60% of GDP growth. Large technology companies and AI‑driven sectors thrived, while manufacturing softened and wage growth moderated.

Inflation moved closer to the Federal Reserve’s comfort zone, landing in the high‑2% range by year‑end. Tariff pressures and persistent housing costs made the final stage of progress less smooth. The Fed responded with three rate cuts and signaled that future adjustments would be deliberate. Markets also had to navigate recurring volatility tied to tariff announcements, policy debates, and geopolitical developments. Once again, the “Magnificent 7” contributed a significant share of market performance, underscoring both the strength and concentration of leadership.

Looking Toward 2026

Despite political uncertainty and a cooling labor market, moderating inflation and solid earnings helped propel markets forward in 2025. As we enter 2026, we see reasons for both optimism and caution. Rising tariffs, sustained deficit spending, and the maturing AI investment cycle point to the importance of staying disciplined. Diversification, strong balance sheets, reliable cash flows, and attention to valuation may serve investors well in the months ahead.

If you’d like guidance tailored to your financial situation, we encourage you to connect with our team for personal support and planning.