Navjot Brar | Jan 07 2026 16:00
A Year of Steady Progress
The past year delivered a rare combination of steady economic growth, easing inflation, and solid market performance—even as news headlines reflected ongoing uncertainty. Together, these factors highlighted that economic progress often moves in fits and starts rather than a straight line.
Technology-Led Market Strength
U.S. equities posted another year of broad gains in 2025, with large‑cap stocks advancing for the third year in a row. Much of the strength came from technology and AI‑related companies, which played a major role in driving the Nasdaq 100’s outperformance and pushing major indices toward record territory.
The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow Jones Industrial Average increased 12.97%. These advances were supported largely by earnings growth rather than expanding valuations. Performance remained uneven across sectors, underscoring the importance of careful selection. International equities also posted strong gains, with the MSCI All Country World ex‑USA index up 32.4% for the year.
Shifting Rate Policy and a Static Housing Market
The Federal Reserve made a meaningful shift in 2025, moving from “higher for longer” toward a measured easing cycle with three rate cuts. Treasury yields drifted lower throughout the year, with the 10‑year yield ending near the low‑4% range. High‑quality fixed income finally offered positive total returns after several difficult years, and bonds resumed their traditional role as diversifiers in periods of equity volatility.
Housing conditions, however, remained challenging. Although mortgage rates fell from 6.91% to 6.15%, activity stayed subdued. Home prices rose by about $7,400, or 1.7%, moving the median to a new high. Elevated rates continued to limit affordability and kept many would‑be movers on the sidelines.
Policy Pressures and Global Undercurrents
Throughout the year, policy developments created a steady backdrop of noise. Rising tariffs and rapid advances in technology reshaped parts of the U.S. economy, channeling investment toward areas such as automation, AI, and domestic manufacturing. Meanwhile, trade‑exposed industries and some consumer‑focused businesses faced added headwinds.
Globally, 2025 brought persistent—but not acute—geopolitical tensions. Ongoing conflicts, supply‑chain vulnerabilities, and discussions around cyber risks and AI governance contributed to elevated risk premiums. Rather than attempting to predict individual outcomes, maintaining flexibility and stress‑testing across scenarios remained key considerations.
Economic Themes and Market Drivers
The U.S. economy avoided recession and grew at a 2% pace, though the benefits were not evenly distributed. Research indicates that around 60% of GDP growth stemmed from AI‑related investment. Technology and AI‑driven industries continued to expand, while manufacturing struggled and wage growth cooled.
Inflation moved closer to the Federal Reserve’s comfort zone, settling in the high‑2% range by year‑end. However, the path remained uneven as tariff‑related pressures and persistent housing costs continued to influence price trends. The Fed’s three rate cuts reflected a shift away from its most restrictive stance, though policymakers signaled that future adjustments would be gradual.
Markets also contended with recurring volatility tied to policy developments, geopolitical concerns, and concentrated performance within major indices. The “Magnificent 7” continued to account for a significant share of market gains, highlighting both their strong earnings contribution and the questions surrounding concentration.
Entering 2026: Opportunities and Considerations
Despite political turbulence and a cooling labor market, moderating inflation and positive earnings growth supported another year of market gains. As we look ahead to 2026, there are reasons for both optimism and restraint. Rising tariffs, continued deficit spending, and a maturing AI investment cycle suggest an environment where discipline remains essential.
Investors who focus on diversification, strong balance sheets, durable cash flows, and thoughtful valuation discipline may be well‑positioned as the year unfolds.
For guidance tailored to your financial goals and circumstances, we encourage you to consult with your financial team. They can help you navigate evolving conditions and develop a strategy suited to your needs.
