Markets and the Economy: A Look Back at 2025

Abby Jordan | Jan 07 2026 16:00

Tech Strength Defined Equity Performance

U.S. stocks posted another year of broad gains in 2025, with technology and AI‑linked companies continuing to propel major indices. Large‑cap equities delivered a third straight year of positive performance, supported by earnings growth rather than rising valuations alone. While tech remained the clear leader, sector performance varied, making selectivity an important theme. International stocks also advanced, highlighted by notable strength across global markets.

Rate Cuts Offered Relief, but Housing Stayed Tight

The Federal Reserve implemented three rate cuts in 2025, shifting from its earlier “higher for longer” stance and providing welcome support to bond investors. Core fixed income regained its role as a stabilizing force, benefitting from lower Treasury yields and calmer credit conditions.

Housing, however, remained constrained. Mortgage rates eased over the year, but affordability challenges persisted, limiting sales activity. Home prices continued to edge higher, underscoring how elevated rates can restrict supply even as borrowing costs decline.

Policy Pressures and Global Tensions

Tariffs and geopolitical frictions served as a steady backdrop throughout the year. Higher trade barriers and rapid technology adoption reshaped parts of the U.S. economy, bolstering areas tied to AI, automation, and domestic manufacturing. Meanwhile, sustained global tensions and supply‑chain concerns contributed to elevated risk considerations. With uncertainty spread across several fronts, maintaining flexible, well‑tested portfolios became increasingly important.

Economic Trends and Market Themes

The U.S. economy expanded at a solid pace in 2025, though the benefits were uneven. AI‑related industries were responsible for a significant share of overall growth, while some areas—such as manufacturing—faced persistent headwinds. Inflation moved closer to the Federal Reserve’s preferred range, even as housing costs and tariff impacts added complexity in the final months of the year.

Market dynamics extended beyond economics. Policy debates, tariff announcements, and geopolitical developments all contributed to periodic volatility. A small group of mega‑cap technology companies continued to drive a substantial portion of equity gains, reinforcing questions about market concentration while also highlighting the ongoing importance of digital transformation.

Looking Ahead to 2026

As we move into 2026, the environment presents a blend of opportunity and caution. Earnings growth and moderating inflation supported progress in 2025, even as political and economic uncertainties persisted. This year may call for balance: maintaining diversification, focusing on companies with strong fundamentals, and staying attentive to valuations as the AI investment cycle matures.

For tailored insights and guidance as the new year unfolds, we encourage you to connect with our financial team. We’re here to help you navigate what comes next with clarity and confidence.