Markets in Review for 2025

Several themes that dominated markets in 2024 remained in play for most of 2025, including artificial intelligence (AI), inflation and its relationship to tariffs, the Federal Reserve and future monetary policy, and the condition of the economy. In the first instance, uncertainty remains about how much longer the enthusiasm around AI spending can continue to extend the runup in tech stock valuations. Second, though inflation remains relatively stable at 2.5–3.5%, it is also sticking above the Fed’s desired target range, and observers’ concerns about how tariffs may or may not be contributing to inflation continue. Finally, as the Fed attempts to carry out its mission to control inflation, it must also contend with a job market that, while remaining relatively steady, should not be considered robust.

Reviewing the performance of specific markets, both domestic and foreign, yields a generally positive picture. The S&P 500 rose nearly 17%, while the DJIA advanced just over 13%. The tech-heavy NASDAQ advanced nearly 21%, and the Russell 3000, which, at 98% of the equities market, includes many small-capitalization companies, grew by about 16%. Internationally, foreign markets charted record highs, with London’s FTSE 100 index increasing 20.2% through the year’s last trading day and the Hang Seng about 28% higher for the period.

Concerns over the direction of US trade policy (i.e., tariffs) and worries that there could be an all-out trade war weighed on equity markets early in the year. But by summer, traders appeared to shrug off most of these fears as markets generally resumed their upward trend. Fixed-income markets were also favorable, though displaying considerable volatility. As other central banks joined the Fed in easing interest rates, bond prices trended upward, with the Bloomberg Barclays Aggregate up more than 6% for the year.

As we look forward into 2026, market participants on both the equity and fixed-income sides will continue to watch the Fed closely for indications about interest rates and expectations for the US economy. Recessionary signals will likely instigate market dips, but if the economy continues to exhibit the type of growth it did in Q2 and Q3 2025 and employment remains at reasonable levels, markets may have room for further expansion. On the other hand, geopolitical uncertainties may continue to fuel market uncertainty and likely boost precious metals, as witnessed by the recent gyrations around the abduction of Venezuelan president Maduro by US forces. Traders will also continue to watch AI-related spending for indications of slowing enthusiasm, which could result in less dominance by the tech sector and lead to investor rotation out of tech and into other sectors exhibiting higher potential for future growth.

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