Despite geopolitical shocks, policy shifts, and questions around AI-driven growth, 2025 delivered strong, broad-based market gains across equities and fixed income. Markets proved resilient, powered by stabilizing rates, recovering bond performance, and continued enthusiasm for innovation. But with policy transitions and labor market pressures on the horizon, 2026 is likely to test investor discipline in new ways.
Markets posted new all-time highs in 2025 across a variety of asset classes, regions, and sectors. The S&P 500 gained 17.9% with dividends, the Dow 14.9%, and the Nasdaq 21.2%. Interest rates were more stable than in recent years, with the 10- year U.S. Treasury ending at 4.17%. Bonds rebounded sharply, with the Bloomberg U.S. Aggregate Index returning 7.3%, regaining much of the ground lost since 2022.
This strength came despite several notable headwinds:
- In April, new reciprocal tariffs on major trading partners triggered a sharp market correction. Markets recovered quickly, reaching new highs by summer.
- Volatility persisted around the sustainability of artificial intelligence (AI) investment and returns. Massive AI spending by the Magnificent 7 and hyperscalers raised comparisons to the dot-com era, though AI-related sectors ultimately led performance.
- The economy remained broadly healthy, though the labor market softened by summer. The Fed began cutting rates in September after holding steady earlier in the year.
- A 43-day government shutdown, the longest in history, had minimal market impact despite disrupting federal operations.
Looking ahead, 2026 will bring new uncertainties including U.S. midterm elections, a change in Fed leadership, and ongoing labor market fragility. Though strong returns have supported many investor portfolios recently, discipline will continue to be the key to navigating choppy markets.
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