The fourth quarter of 2025 capped off a rollercoaster year for financial markets as investor concerns around trade tariffs gave way to strong stock and bond returns globally. During the year, investor resilience was tested repeatedly as economists put forth dire economic predictions while suggesting higher chances of a broad recession. Nevertheless, equity markets were able to shrug off geopolitical tensions and an extended U.S. government shutdown, giving way to a third consecutive year of double-digit advances and record highs for global equity benchmarks.

Amid a backdrop of tariff uncertainty, rising unemployment, and stubborn inflation data, the U.S. economy persevered, with both businesses and consumers holding up well. Once again, leading corporations were able to innovate and respond to business challenges which resulted in strong gross domestic product (GDP) growth. Economists also observed continued business strength to close out the year thanks to record holiday shopping sales, spurring the Atlanta Federal Reserve to increase their estimate for fourth quarter GDP to a robust 5.4%.

While there continues to be speculation about the replacement of Fed Chair Jerome Powell in May, Federal Reserve officials remain focused on their dual mandate of full employment and stable prices. Central bank committee members have pointed to potential risks in the economy with the unemployment rate (4.6%) at its highest level since July of 2021. On the inflation front, price levels in the economy remain stubbornly high (up 3%), and above the Fed’s target of 2% annual price increases.

With U.S. stocks at record levels, Wall Street analysts have high expectations of 13-15% earnings per share growth for company profits in 2026. Euphoria over the buildout of artificial intelligence (AI) has contributed to recent strength in equities, as companies in adjacent sectors also benefit from AI demand for electrical power, building materials, and construction equipment. Conversely, AI skeptics are monitoring the substantial debt being used to fund the digital infrastructure buildout while drawing similarities to the dot.com era bubble and ensuing market collapse in the late 1990’s.

Looking ahead, confidence in the business community is increasing with executives in North America anticipating one of the strongest years for corporate mergers and acquisitions. In addition, Wall Street is gearing up for a robust year of IPO (Initial Public Offering) stock deals. As we mentioned in a recent letter, overall conditions appear favorable for the economy, including a friendlier antitrust approach in Washington, lower corporate financing costs (attributed to falling interest rates), combined with a friendlier probusiness regulatory environment.