Markets and Economy: A Look Back at 2025

U.S. Equity Gains Led by Tech Strength

The market landscape of 2025 reflected steady economic progress paired with notable concentration in performance. Large‑cap U.S. equities posted another year of double‑digit gains, with technology and AI‑linked companies driving major indices toward or near record levels. Returns were supported primarily by earnings growth rather than expanding valuations, while results varied widely across sectors. International equities also advanced meaningfully, contributing to a strong global backdrop.

Shifts in Rates and a Slow‑Moving Housing Market

The Federal Reserve’s three-quarter‑point rate cuts marked an important shift toward a more gradual easing cycle. Treasury yields declined over the year, offering bond investors some relief as high‑quality fixed income returned to its traditional role as a stabilizer. Credit conditions remained relatively calm, though vigilance remains important in lower‑quality areas where borrowing costs and labor‑market softness could eventually weigh.

In housing, falling mortgage rates did little to stimulate activity. Home prices reached new highs despite muted movement, underscoring how elevated financing costs can freeze supply rather than bring affordability. Households considering changes may benefit from careful timing and thoughtful financing decisions as rates move gradually lower.

Policy, Tariffs, and Geopolitical Undercurrents

Policy developments and geopolitical dynamics formed a steady backdrop of uncertainty throughout the year. Higher tariffs and rapid technology adoption reshaped portions of the economy, helping channel investment toward AI, automation, and domestic manufacturing while putting pressure on trade‑exposed sectors. Meanwhile, persistent geopolitical tensions, supply‑chain concerns, and emerging conversations around cyber risk and AI governance contributed to elevated risk premiums.

Economic Themes That Defined the Year

The U.S. economy expanded at a 2% pace in 2025, avoiding recession but delivering gains that were uneven across industries. AI‑driven activity accounted for a significant share of overall growth, with large technology firms continuing to benefit. Manufacturing remained challenged, and wage growth moderated, reflecting the mixed nature of the expansion.

Inflation moved closer to the Federal Reserve’s comfort zone, though progress was uneven due to tariff‑related pressures and persistently high housing costs. The Fed responded with measured rate cuts, stepping back from its most restrictive stance while signaling a deliberate approach going forward. Markets also contended with periodic volatility tied to policy announcements, geopolitical headlines, and ongoing concerns about concentration as major technology companies continued to drive a large portion of returns.

Looking Ahead to 2026

The experience of 2025 showed that markets can advance even when the news cycle feels unsettled. Earnings growth and moderating inflation helped support another year of gains despite political and labor‑market crosscurrents. As we move into 2026, the environment calls for both optimism and discipline. Rising tariffs, continued deficit spending, and a maturing AI investment cycle suggest the value of diversification, attention to balance‑sheet strength, and thoughtful valuation awareness.

For guidance tailored to your individual financial goals, we encourage you to connect with our financial team for personalized support and planning.