2025 Year-In-Review

2025 was an exceptional year in the markets. At the beginning of 2025, we noted three key areas that were likely to drive the market higher. First, we noted that the Federal Reserve was likely to lower interest rates and stimulate the economy.  Secondly, we highlighted a surge in productivity growth, which is the secret sauce of capitalism, would allow both worker incomes and corporate profits to grow. Finally, we noted that Trump’s 2^nd term in office, with promised lower taxes, lower regulation, and lower energy costs was likely to be a tailwind to stocks. Despite some fairly significant tariff induced volatility during the year, all three of the items on our ‘what could go right’ list managed to move the market higher.

For the year the S&P 500 was up 16.4%. Meanwhile, international markets outperformed significantly with the MSCI EAFE index up over 31% and the emerging markets index up more than 33%.  Gold and Silver were also big winners, up more than 63% and 144%, respectively. Even bonds had a solid year with the Bloomberg US Aggregate returning over 7%. 

The big story for 2025 was Artificial Intelligence (“AI”), which was suddenly everywhere. JP Morgan estimates that capital spending in the US on AI infrastructure exceeded $600 billion for the year, with four companies: Microsoft, Alphabet, Amazon and Meta accounting for than half of that figure.  The significance of both the investment in AI and the potential benefits of AI are hard to understate. Ultimately, Trillions of dollars are expected to be invested in the technology, driving stock valuations higher. Is AI a bubble?  It is a question we will try to tackle next week as we consider our 2026 outlook. For now, AI spending has been a key part of the story for 2025.

Tariffs were also critical to market movements in 2025. We listed tariffs in our risk category and they certainly did deliver. The “Liberation Day” tariff announcement in April 2025 resulted in a drop of more than 10% in the overall market and more than 20% in tech stocks. The market did recover and despite the back of forth of tariff negotiations seems to have shrugged off the higher tariffs.

The Federal Reserve began its their easing cycle as inflation receded, dropping the Federal Funds rate from 4.5% at the beginning of the year to 3.75% in December.  The move provided a boost for stocks that see lower interest rates as boost to the economy.

As we close out 2025, let us take a moment to be thankful for all that has gone right. Next week we will bring you our outlook for 2026. I hope you all have a Happy and Blessed New Year!