Amid activity, markets adapt

2025 closed with no shortage of headlines. Despite the noise, markets did what they have always done: adapt.

Over the course of the year, investors navigated shifting interest rate expectations, ongoing inflation conversations, and periods of both volatility and resilience across asset classes. By year-end, cautious optimism began to take shape as markets adjusted to new economic realities and evolving policy signals.

This Wrap-Up will look at what mattered most last year and what it means as we look forward to 2026. First, we will begin with results from December—the final push in 2025.

December 2025

The December market environment was defined by shifting Federal Reserve expectations, ongoing government policy shifts, and significant sector divergence driven by end-of-year profit taking.

• The Federal Reserve executed a quarter-point rate reduction.
• S&P 500 ended flat, with the Dow up 1% and the Nasdaq down about .5%.
• The best performing sectors were Financials, up 3%, and Communication Services, up 2.35%. The worst performing sectors were Utilities, down 5% and Real Estate, down 2%.

2025 Market Performance

2025 marked a robust year across diversified asset classes, driven by strong equity and commodity performance.

• In Domestic equities, the S&P 500 delivered 17.88% returns, while the Nasdaq outpaced broader markets at 21.14%, offsetting the Dow Jones Industrial Average’s more modest 13.68% gain.
• Commodities emerged as the standout performer, with precious metals commanding investor attention: silver surged 140%, while gold climbed 63%. This rally reflects both inflation hedging demand and safe-haven positioning amid macroeconomic uncertainty.
• International equity markets capitalized on foreign market valuations and currency dynamics, with Developed International equities returning 31.9% and Emerging Markets delivering 34.4%.  These rates exceeded domestic equity performance and highlight the diversification benefits of geographic allocation.
• The Bloomberg Aggregate Bond Index posted 8.17% returns, marking its strongest year since 2020.

2025 Economic Data: Rates, Inflation, Labor Market

The U.S. economy demonstrated resilience throughout 2025 despite earlier recession concerns, a government shutdown, and shifting political landscapes.

• The delayed Q3 gross domestic product report showed the economy grew at an annualized 4.3% rate, marking the strongest economic growth in two years.
• Industrial production grew 2.5% year-over-year in November, the highest increase since September 2022.
• The Federal Reserve cut interest rates three times in 2025, reducing the federal funds rate by a cumulative 0.75%, bringing the target range to 3.5% – 3.75% by December.
• Inflation remained above the Fed’s 2% target, with the Consumer Price Index at 2.7% in November.
• Job growth slowed significantly in 2025, the slowest pace since 2003 outside of pandemic-related periods.

Looking ahead to 2026:

Economists maintain a cautiously optimistic outlook for 2026. As we head into the new year, investors will look to 2025’s activities and data as indicators of possible 2026 outcomes.

• Stock market forecasts remain generally positive with expectations of S&P 500 earnings growth of 13% -15% for at least the next two years.
• Analysts project U.S. economic growth between 2.5% and 2.8%, supported by reduced tariff drag from 2025, tax cuts, and easier financial conditions.
• Inflation is expected to remain above the Fed’s 2% target, with forecasts around 2.4% – 2.7%.
• The Fed remained cautious about future cuts, projecting only one additional 0.25% reduction in 2026.
• The job market represents a key uncertainty for 2026. Forecasters expect unemployment to drift slightly higher, with estimates suggesting the rate could reach 4.4% – 4.5% by year-end 2026.

Key Themes for Investors to monitor in the coming year:

Several important developments could shape 2026 market dynamics.

• Political events: The Federal Reserve leadership transition represents a notable uncertainty, as President Trump indicated he will announce a new Fed Chair by January. Additionally, tariff policies and trade tensions with China could significantly impact corporate earnings and consumer prices throughout the year.
• Consumer spending: These patterns warrant close attention, as inflation continues to strain household budgets despite wage growth and low unemployment. Lower-income consumers have shown signs of economic stress, potentially affecting retail earnings in 2026.
• Commercial real estate: The sector continues navigating structural challenges, with office space experiencing managed decline as companies permanently reduce footprints. Specialized sectors like data centers and healthcare real estate continue to attract strong investment demand.

As 2025 demonstrated, markets reward patience far more consistently than prediction. Periods of volatility tested investor resolve, yet diversified portfolios and a long-term approach helped smooth uncertainty while keeping investors positioned for recovery and growth. Staying invested—rather than reacting to headlines—proved critical in capturing opportunities as they emerged across asset classes.

As we move forward, thoughtful diversification and disciplined planning can be essential tools in navigating whatever comes next. If you have questions, we encourage you to reach out to our team. We are always here to help. We look forward to working with you in the year ahead!

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