Market and Economic Highlights From 2025

The past year offered a unique mix of steady economic growth, moderating inflation, and strong market performance—even as the broader environment remained filled with uncertainty. Below is a look at what shaped the financial landscape in 2025 and the themes we believe may carry into the new year.

Tech Leadership and Broad Market Strength

Equity markets closed 2025 with solid double‑digit gains, marking the third year in a row of strong large‑cap performance. Results were highly uneven across sectors, but technology and AI‑oriented companies continued to play an outsized role. Their strength helped lift major indices toward record levels, with the S&P 500, Nasdaq 100, and Dow all advancing meaningfully.

Importantly, earnings—not valuation expansion—were a primary driver. Mega‑cap technology and financial firms contributed significantly, while international equities also posted notable gains. Selectivity remained important given the wide performance gaps across industries.

Lower Rates Bring Relief But Housing Stays Tight

The Federal Reserve shifted from a restrictive stance to gradual easing, implementing three quarter‑point cuts during the year. Treasury yields moved lower as a result, helping high‑quality fixed income deliver positive total returns after a challenging period of rising rates.

Bonds also resumed their role as portfolio diversifiers and steady income sources. Credit remained generally stable, though we remain attentive to segments where higher borrowing costs and softer labor conditions could create strain.

Housing conditions were more complicated. Mortgage rates declined over the year but remained elevated compared with pre‑pandemic levels. Price growth continued, and low inventory kept many prospective buyers and sellers on the sidelines. Affordability challenges persisted, making strategic timing and financing especially important.

Trade Policy and Global Tensions in the Background

Policy developments played a consistent role throughout 2025. Higher tariffs, paired with rapid adoption of new technologies, steered investment toward AI, automation, and domestic manufacturing. At the same time, trade‑related industries and certain consumer‑focused sectors faced added pressure.

Globally, tensions simmered without a single defining crisis. Ongoing conflicts, cyber concerns, and supply‑chain vulnerabilities all contributed to a backdrop of elevated uncertainty. In such an environment, flexible planning and scenario analysis remained central to prudent portfolio management.

Growth, Inflation, and the Structure of the Economy

The U.S. expanded at a 2% pace, avoiding recession but experiencing uneven momentum across industries. AI‑related investment accounted for a significant share of overall growth, while manufacturing and wage gains softened. This combination highlighted both underlying economic resilience and the asymmetry of the current expansion.

Inflation continued to move closer to the Federal Reserve’s preferred range, settling in the high‑2% area by year‑end. The improvement was steady but not linear, as tariffs and housing costs contributed to some late‑year firmness. The Fed responded with measured cuts and clear communication that future moves would be deliberate.

Meanwhile, volatility arose not only from economic data but from policy debates, tariff announcements, and geopolitical events. Large technology companies again accounted for a substantial share of index gains, reinforcing themes of market concentration and continued digital transformation.

Looking Ahead to 2026

Markets demonstrated in 2025 that progress can occur even amid political uncertainty and shifting labor dynamics. Earnings growth and moderating inflation created a constructive foundation, yet areas of caution remain as we head into 2026.

Higher tariffs, ongoing deficit spending, and a maturing AI investment cycle emphasize the importance of maintaining balance, discipline, and diversification. Investors who focus on strong fundamentals, consistent cash flow, and thoughtful valuation may be well‑positioned in the year ahead.

If you’d like personalized guidance tailored to your financial goals, we encourage you to reach out to our team for support and a deeper conversation.