Markets and the Economy: A Look Back at 2025

The year we wrapped up brought a blend of solid economic growth, easing inflation, and strong market performance, even as uncertainty dominated the headlines. It was a reminder that progress rarely unfolds in a straight line.

Tech Leadership Drives U.S. Stock Gains

U.S. stocks delivered broad double‑digit gains in 2025, marking the third straight year of strength for large‑cap equities. Technology and AI‑linked companies continued to lead the way, pushing major indices toward record levels. The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow added 12.97%. Earnings growth—particularly from mega‑tech and financial companies—played a central role, though performance differed significantly across sectors. International stocks also advanced, with the MSCI All Country World ex‑USA index up 32.4%.

Rate Cuts Offer Relief, but Housing Stays Tight

The Federal Reserve shifted from its “higher for longer” stance, implementing three‑quarter‑point cuts in 2025. Treasury yields moved gradually lower, and high‑quality bonds delivered positive total returns after a challenging period. Core bonds resumed their traditional role as diversifiers and income sources. Credit spreads remained fairly steady, though lower‑quality areas continue to warrant attention.

Housing, however, remained constrained. Mortgage rates fell from 6.91% to 6.15%, yet activity stayed muted. Home prices climbed about $7,400, continuing to challenge affordability. For households planning a move, careful timing and thoughtful financing strategies remain important.

Tariffs and Global Tensions Shape the Backdrop

Higher tariffs and rapid technology adoption influenced economic dynamics throughout the year, directing investment toward AI, automation, and domestic manufacturing. Geopolitical developments created a steady level of tension rather than a single major disruption, with ongoing conflicts, supply‑chain concerns, and debates around cyber risks and AI governance contributing to persistent risk premiums. In this environment, stress‑testing and maintaining flexibility remain useful approaches.

Key Economic Themes

The U.S. avoided recession and grew around 2%, though the benefits were uneven. Roughly 60% of GDP growth came from AI‑related expansion. Large technology companies continued to thrive while areas like manufacturing and wage growth showed softer trends. Inflation eased into the high‑2% range, though tariffs and housing costs made the final stretch choppy. The Fed supported conditions with three measured rate cuts. Markets also navigated tariff announcements, shutdown concerns, policy debates, and global tensions, while market concentration persisted, led by the largest technology names.

Looking Ahead to 2026

Last year reinforced that markets can advance even when headlines feel uncertain. Positive earnings growth and moderating inflation contributed to another year of progress. As we enter 2026, we see room for both optimism and caution. Rising tariffs, ongoing deficit spending, and the maturing AI investment wave point to a period that calls for disciplined investing. Staying diversified and focusing on strong balance sheets and consistent cash flows may offer steadier outcomes.

If you’d like help reviewing your own strategy or discussing what these trends could mean for your financial plan, our team is here to support you.