Financial markets enjoyed a bountiful 2025, with global stock and bond benchmarks overcoming geopolitical and economic challenges to deliver strong gains for investors. While the S&P 500 index is on track for its third consecutive year of double-digit gains, international stocks have led the way year-to-date with returns exceeding 30%. Bonds also contributed meaningfully to this year’s results, registering their best performance since 2020 with gains over 7% (as measured by the Bloomberg U.S. Aggregate Bond Index).
Earlier in the year, recession worries swirled as President Trump’s April tariff announcement (highest levies in 100 years) caused equity markets to tumble. However, follow-on trade negotiations calmed investor nerves as realized tariff levels registered a less-than feared 11%. Business optimism and consumer confidence also returned in the second half of the year, culminating in a strong holiday shopping season in the U.S. After a Thanksgiving weekend that counted a record 187 million shoppers, economists raised their forecasts to greater than $1 trillion in retail sales for the holiday season.
Around the world, government leaders continued rolling out significant fiscal stimulus to support their local economies. In the U.S., a dovish Federal Reserve cut interest rates in an effort to boost the housing market and lower borrowing costs for consumers and businesses. Additionally, the recently passed One Big Beautiful Bill Act was aimed at revitalizing U.S. manufacturing – particularly in the lagging industrial sector. In Europe, Germany took bold steps to support its leading companies, passing a 500 billion euro infrastructure and defense package. Finally, major Asian countries undertook reforms to create an investment environment that is more shareholder friendly, reflected both in South Korea’s recently enacted Value-Up Program as well as Japan’s multi-pronged initiatives led by the Tokyo Stock Exchange.
On a less optimistic note, there is reduced clarity around the U.S. inflation and employment outlook – particularly after the U.S. government endured its longest shutdown in the country’s history. In turn, investors will be monitoring upcoming economic data closely, given its propensity to impact Federal Reserve interest rate policy, guide overall business conditions, and influence the general mood of financial markets. Lastly, with GDP growth expected to be less than 1% in the fourth quarter, the economy has little room for error due to the high expectations of investors.
As it pertains to the stock market, the outlook for corporate fundamentals and profit expectations remains bullish, in part due to the artificial intelligence (AI) boom featuring high demand for computer chips, data centers, and other infrastructure-related equipment. For context, major semiconductor company Advanced Micro Devices recently forecast that the AI data center chip market will grow from $200 billion to $1 trillion by 2030. Since the emergence of ChatGPT in 2022, investors have been comparing AI to the most transformative inventions on record (i.e., electricity, railroads, the internet).
Heading into the New Year, we believe diversification and a balanced approach will continue to serve investors well. Encouragingly, 2026 has the potential to bring economic stability as geopolitical tensions moderate, tariffs become better understood, and companies gain confidence in planning for the future. Lastly, market optimists are also pointing to recent legislation as potential catalysts for the market, including backdating of the 2025 tax cuts which are expected to lavish an average of $3000-$4000 in refunds on approximately 165 million tax filers.
