A Look Back at the Markets and Economy in 2025

The past year brought steady economic growth, easing price pressures, and strong market performance, even as headlines highlighted ongoing uncertainty. Below is a recap of the major developments that shaped the financial landscape in 2025 and the themes that may carry into 2026.

Tech Leadership Drives U.S. Equity Gains

U.S. stocks delivered another year of solid, broad-based gains. Large‑cap equities posted their third consecutive year of double‑digit increases, with technology and AI‑focused companies continuing to steer performance. The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow added 12.97%. Corporate earnings remained the primary driver of higher prices, and international markets also performed well, with global equities outside the U.S. advancing 32.4%.

Fed Policy Shift Sends Rates Lower

The Federal Reserve’s three-quarter‑point rate cuts marked a clear shift from the “higher for longer” stance. Treasury yields eased throughout the year, with the 10‑year rate landing in the low‑4% range by December. High‑quality bonds delivered positive total returns, and core fixed income resumed its traditional role as a diversifier and source of stable income. Credit conditions remained generally calm, though lower‑quality segments still warrant attention.

Housing Activity Slows Despite Lower Mortgage Rates

Even with mortgage rates declining from 6.91% to 6.15%, housing activity remained limited. Home prices climbed about $7,400, reaching a new median high, underscoring that elevated borrowing costs can keep the market frozen rather than make homes more affordable. For households planning a move, careful timing and flexible financing strategies remain important as rates drift lower but stay above pre‑pandemic levels.

Policy Shifts and Persistent Global Tensions

Higher tariffs and rapid technological adoption continued to reshape parts of the U.S. economy, channeling investment toward AI, automation, and domestic production. Geopolitical tensions stayed elevated, though no single crisis dominated the year. Instead, ongoing conflicts, supply‑chain challenges, and discussions around cyber risk and AI governance contributed to steady background volatility.

Economic Growth Holds Steady, Powered by AI Investment

The U.S. economy expanded at a 2% pace, though not all sectors experienced the same momentum. Research indicates that roughly 60% of GDP growth stemmed from AI‑driven investment. Large technology companies and AI‑linked industries remained standouts, while manufacturing softened and wage growth cooled. Inflation moved closer to the Federal Reserve’s preferred range, settling in the high‑2% area by year-end, even as tariffs and housing costs complicated the final stretch.

Entering 2026 With Balance and Discipline

Despite political uncertainty and a cooling labor market, moderating inflation and continued earnings growth supported positive market returns. Looking ahead, rising tariffs, ongoing fiscal pressures, and a maturing AI investment cycle suggest that maintaining diversification and focusing on strong balance sheets may be prudent. Investors who stay disciplined and valuation‑minded may be best positioned as the year unfolds.