2025 Market and Economic Review: Progress Amid Uncertainty

A Year of Steady Expansion

2025 closed with a combination that can be hard to find: solid economic growth, easing inflation, and strong market performance. Even as headlines pointed to uncertainty, the broader data showed that progress continued, though not always in a straight line. Together, these forces shaped a year marked by resilience and structural transition.

Technology-Led Stock Market Strength

U.S. equities delivered another year of broad gains. Performance remained concentrated, with technology and AI-linked companies driving a substantial portion of returns and helping major indices reach or approach record levels. The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow Jones Industrial Average climbed 12.97%. Company earnings played a central role in supporting these advances, particularly in mega-cap technology and financials, while international equities also posted strong results.

Lower Rates and a Stalled Housing Market

The Federal Reserve shifted its policy stance by implementing three quarter-point rate cuts in 2025, moving from a “higher for longer” posture to gradual easing. Treasury yields trended lower, and high-quality bonds generated positive total returns after several challenging years. Core fixed income once again provided diversification benefits and steadier income as volatility emerged in other parts of the market.

Housing trends were more mixed. Mortgage rates declined from 6.91% to 6.15%, yet activity remained limited. Home prices still rose, underscoring that elevated rates continue to restrict supply. Affordability challenges persisted, suggesting that timing and flexible financing strategies may remain important for households considering a move.

Policy Shifts and Geopolitical Undercurrents

Policy and geopolitical developments formed a persistent backdrop throughout the year. Higher tariffs, combined with accelerating technology adoption, shifted capital toward domestic manufacturing, automation, and AI-related industries. Meanwhile, global tensions remained steady rather than dramatic. Ongoing conflicts, supply-chain concerns, and emerging questions around cyber risks and AI governance contributed to elevated risk premiums. Preparing portfolios for varied scenarios remained a key theme.

Key Themes From 2025

Economic growth settled around 2%, though the distribution of gains varied. Research indicates that AI-related investment accounted for a significant share of GDP growth, with technology-driven industries outperforming traditional manufacturing. Inflation moved closer to the Federal Reserve’s preferred range, ending the year in the high-2% area, though tariffs and housing costs shaped the final months. The Fed’s three rate cuts marked a shift toward a more balanced policy approach, while market performance remained heavily influenced by a small number of large technology companies.

Entering 2026 With Balance and Discipline

As 2026 begins, the previous year demonstrated that markets can advance even when conditions feel uncertain. Moderating inflation, steady earnings growth, and structural investment in AI supported performance, despite political developments and a cooling labor market. Looking ahead, both opportunity and caution remain present. Rising tariffs, ongoing deficit spending, and a maturing AI cycle point to the importance of diversification, strong balance sheets, and attention to valuation.

For guidance tailored to your situation, we encourage you to connect with our financial team to discuss how these developments may shape your plans for the year ahead.