A 2025 three-peat

The bull market that kicked off in late 2022 kept rolling through 2025, with the S&P 500 recording another impressive year, climbing 16.4% following back-to-back gains that exceeded 20% in 2023 and 2024.

Source: Wall Street Journal, MSCI.com, Bloomberg, MarketWatch
December returns: November 28, 2025 – December 31, 2025
2025 returns: December 31, 2024 – December 31, 2025
**in US dollars

We did, however, experience a sharp but temporary pullback when so-called Liberation Day tariffs levied in early April generated an enormous amount of uncertainty. When steeper-than-anticipated tariffs were modified, volatility began to dissipate, and investors re-engaged amid positive fundamentals.

As we saw in 2024, the Federal Reserve lowered the fed funds rate. We believe it’s worth noting that recent rate cuts by the Fed came against a backdrop of continued economic growth, a key factor supporting corporate earnings.

Historically, rate cuts enacted during economic downturns have failed to lift equities, as seen in 2001 and 2008.

Profit growth also remained strong, which underpinned equities amid the expanding U.S. economy.

Moreover, the AI boom continued to fuel tech stocks and earnings. Just as in 2024, the tech-heavy Nasdaq Composite once again led the charge, outpacing other major U.S. indexes.

A 2025 surprise—the global arena

Global stocks have been hibernating for years. In 2024, the MSCI World Ex-USA Index posted a gain of just 2.0%, according to MSCI (in U.S. dollars). Its 10-year annualized gain of 2.6% per year paled in contrast to major U.S. market indexes.

Last year, however, global stocks awoke from their slumber, easily outpacing returns in the U.S.

For starters, a weaker dollar amplified global equities held by U.S. investors. A falling dollar boosts U.S. returns when foreign currencies are translated back into dollars. As referenced in the table of return, the MSCI ex-USA Index leapt 28.6%.

In contrast, the index in their respective home currencies rose 18.7%. That’s respectable, but not the turbo-charged returns U.S. investors experienced.

Other factors that bolstered returns around the world include

• Ongoing trade tensions and tariff uncertainty weighed on U.S. sentiment and encouraged investors to look at other markets.
• Many global markets sported lower valuations, attracting investors.
• Looser fiscal policies, especially in European countries, supported equities.
• Lingering doubts about the Fed’s independence from executive branch interference fueled diversification outside the U.S.

Last year’s outsized advance is a reminder that investments in global equities reduce home-country concentration and currency risk.

Aided by a drop in the dollar, gold also delivered an outstanding return. Globally, gold is priced in dollars, and a weaker dollar tends to support the price of gold. In addition, gold was supported by modest global central bank purchases, tariff and trade uncertainty, questions about the Fed’s independence, and Fed rate cuts.

Investors wary of heightened geopolitical tensions and other risks, like the ballooning U.S. deficit, also aided the shiny metal.

While many of the factors that supported gold last year remain in place as we enter 2026, we would be remiss not to caution that gold is very speculative, and price action can be very volatile.

The new year

According to CNBC’s 2026 survey of 14 market strategists, the average year-end target for the S&P 500 is 7,628.57.

In part, many of the themes that supported stocks last year remain in place. The economy is expanding, and corporate profits are expected to remain on an upward trajectory. Although the Fed is eyeing fewer rate cuts this year, it isn’t currently considering rate hikes amid an inflation rate that remains modestly but stubbornly above the Fed’s target rate of 2%.

But a note of caution is in order. Strategists bring unique observations to our attention. We are better informed due to their diligence and insights. They really are brilliant men and women.

But they grapple with the unknown, and no one knows precisely how the future will unfold.

Yet, the unknown encourages us to get comfortable with some degree of risk. It allows us to become better and more disciplined investors.

Final thoughts

While diversification can’t fully shield a portfolio from market pullbacks, it remains one of the most effective ways to reduce volatility and pursue long-term financial goals.

Our investment philosophy is rooted in experience and supported by rigorous academic research. While equities will inevitably disappoint, history has demonstrated that patient, disciplined investors are consistently rewarded over the long term.

I trust you found this review to be insightful. If you have any questions or simply want to talk through your portfolio or other financial goals, please don’t hesitate to reach out to me or anyone on our team.

We’re always here for you.