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Happy New Year! |
As we step into the new year, it's a good moment to pause and look at what truly shaped the markets in 2025: |
The S&P 500 just closed out 2025 with a 15-18% gain. |
That's three years in a row of double-digit returns. |
But here's what the headlines won't tell you: this was one of the wildest rides in recent memory, and most investors didn't see it coming. |
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Trump's "Liberation Day" Tariffs |
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Remember April? The market lost $5 trillion in two days. |
That wasn't a typo. When President Trump announced new tariffs on China, Mexico, and Canada, the market dropped nearly 20% over seven weeks. |
The S&P 500 fell from around 6,200 down to 4,800. People were panicking. Financial advisors were fielding calls from clients who wanted to sell everything. |
But something interesting happened. The tariffs got paused. Negotiations started. And by late summer, the market had climbed back to new highs. If you sold during that panic, you missed one of the fastest recoveries on record. |
That gap between panic and reality? It matters more than you might think. |
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The AI Story That Won't Quit |
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Here's what kept the market moving: AI. |
Big tech companies spent nearly $405 billion on AI infrastructure this year. That's not a small bet. That's Microsoft $MSFT ( ▲ 0.08% ) , Amazon $AMZN ( ▲ 0.2% ) , Google $GOOGL ( ▲ 0.09% ) , and Meta $META ( ▲ 1.1% ) betting the house. |
According to a Goldman Sachs report, US hyperscalers are forecasted to spend $1T by 2026. |
Nvidia hit a $5 trillion valuation. Then it suffered the biggest single-day loss in market history. Then it climbed right back up. This kind of swing used to take years. Now it happens in weeks. |
But there's a catch. An MIT report from July found that 95% of AI pilot projects failed to show any measurable profit. Think about that for a second. Companies are spending hundreds of billions, but most projects aren't making money yet. |
This creates what analysts are calling a "bifurcation" in the market. Some companies are spending massive amounts on AI. |
Others are making money from that spending. And investors are just now starting to figure out which group they want to own. |
| | | | Let's be honest — how do you see the AI trade right now? | |
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What the Fed Actually Did |
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The Federal Reserve cut interest rates three times in 2025. September, October, and December. They brought rates down from their peak to a range of 3.50%-3.75%. |
That's the good news. The less good news? They signaled one or two more cuts for 2026. Jerome Powell made it clear at the December meeting that they're being cautious. Inflation isn't dead yet. The labor market is still holding up. And stock valuations are, in his words, "elevated." |
The Fed thinks stocks might be too expensive. |
Here's why that matters for regular investors. Lower rates usually help stocks. |
But if the Fed is worried about inflation coming back, they might not cut as much as the market wants. And markets hate disappointment. |
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Gold Prices in 2025 |
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Gold prices posted continuous gains in 2025, climbing as much as 70% and surpassing $4,580/oz for the first time in December. The surge marked gold's strongest year since 1979. |
Trade concerns, reduced demand for the U.S. dollar and increased central bank buying combined to create ideal conditions for this historic upswing. |
After the explosive demand-led surge seen throughout 2025, what is the outlook for gold prices in 2026 and beyond? |
| ❝ | | | "The long-term trend of official reserve and investor diversification into gold has further to run. We expect gold demand to push prices toward $5,000/oz by year-end 2026." | | | | Natasha Kaneva, Head of Global Commodities Strategy at J.P. Morgan |
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The Economy Nobody Talks About |
There are really two economies right now. High-income earners are doing great. Their wealth is tied to stocks, which are up. They're spending money and keeping the economy humming. |
Lower-income consumers are struggling. Credit card delinquencies are rising. High interest rates are still making loans expensive. And inflation, while lower than it was, hasn't gone away for things like groceries and rent. |
This creates what economists call a "top-heavy" economy. It looks good on paper because the people with money are spending. |
But if the stock market stumbles, those high earners will pull back fast. And that could hurt more than people realize. |
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The International Surprise |
Here's something most people missed: international stocks actually beat the S&P 500 this year on a year-to-date basis. Both developed markets and emerging markets outperformed U.S. large caps. |
American investors tend to ignore this. We love our tech stocks and our domestic names. But the rest of the world had a pretty good year, and it did it without the extreme concentration risk that the U.S. market has. |
The Mag7 tech stocks accounted for most of the S&P 500's gains in 2024 and 2025. Strip those out, and the market looks very different. That kind of concentration makes some investors nervous. |
If those seven stocks stumble, they could take the whole market down with them. |
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What About 2026? |
Wall Street analysts are predicting another good year. Many forecasts put the S&P 500 around 7,800 by the end of 2026. That's about 16% higher from current levels. |
Their case rests on three things. |
First, corporate earnings are expected to grow more than 15%. |
Second, the Fed is still expected to cut rates, just slowly. |
Third, AI spending will eventually translate into profits for more companies, not just the big tech names. |
But there are real risks. Valuations are stretched. Tech stocks are trading at levels that assume nearly perfect execution going forward. Any disappointment could trigger a sharp pullback. |
Inflation could come back stronger than expected, forcing the Fed to raise rates instead of cutting them. Tariff tensions could flare up again. And there's always the possibility that AI spending doesn't pay off the way everyone hopes. |
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What This Means |
If you're invested in the market, you've had a great three years. |
The S&P 500 has delivered strong returns, and many people have seen their retirement accounts grow significantly. |
But this isn't the time to get complacent. Here's what you should be thinking about as we head into 2026. |
First, check your portfolio allocation. If you haven't rebalanced recently, your stock allocation might be higher than you intended just because stocks have done so well. That means more risk than you planned for. |
Second, don't try to time the market based on what happened in April. Yes, the market recovered. But that doesn't mean it will always recover that quickly. Stay invested, but make sure you can handle another 20% drop without panicking. |
Third, consider diversifying beyond the Magnificent Seven. |
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If your portfolio is heavily weighted toward big tech stocks, you're taking concentrated risk. International stocks, small caps, and value stocks all performed better than expected in 2025 and might continue to do well. |
Fourth, keep some cash on hand. Not because you're trying to time a crash, but because opportunities come up. When the market fell in April, investors with cash were able to buy at much better prices. |
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The Bottom Line |
2025 was a year that tested everyone's nerves. |
We saw one of the fastest market drops in history, followed by one of the strongest recoveries. AI dominated the headlines and drove most of the gains. The Fed cut rates but warned they won't cut much more. |
The market ended the year near all-time highs. But it got there through extreme volatility, concentrated gains in a handful of stocks, and an economy that looks very different depending on where you sit on the income scale. |
Looking ahead, the consensus is positive. But consensus can be wrong. |
Stay invested, stay diversified, and don't let recent success make you forget about risk. |
The market rewarded patience this year. It might reward caution next year. |
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As we head into the new year, our team simply wants to say thank you. 🙏
Thank you for reading, thinking critically, and staying with us through another volatile year in the markets. |
We wish you a healthy, steady, and thoughtful year ahead — and we look forward to navigating what comes next together. |
| | | | Quick check — was this worth your time today? | |
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Disclaimer: This analysis is for educational purposes only and should not be considered investment advice. Always do your own research before making investment decisions. |
Items marked with an asterisk (*) are promotional and help support this newsletter at no cost to readers. |
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