A Year of Growth, Cooling Prices, and Market Strength

Even with a steady stream of uncertainty in the headlines, 2025 closed as a year marked by solid economic growth, easing inflation, and strong market performance. Progress didn’t unfold in a straight line, but the broader picture reflected resilience across key areas of the economy.

Tech Leadership Drives U.S. Equity Gains

U.S. stocks delivered broad double‑digit gains for the third consecutive year, though performance remained concentrated among technology and AI‑oriented leaders. Large‑cap equities pushed major indices toward record levels, supported primarily by higher corporate earnings rather than rising valuation premiums. International stocks also advanced, contributing meaningfully to global performance.

Interest Rates Shift While Housing Stays Tight

The Federal Reserve moved from a “higher for longer” stance to a gradual easing cycle, cutting rates by three‑quarters of a point over the year. Treasury yields trended lower, offering welcome relief to bond investors after several challenging years. Core bond funds resumed their traditional role as stabilizers during periods of volatility.

Housing, however, remained constrained. Mortgage rates eased from their peak but stayed elevated compared to pre‑pandemic levels. Limited inventory and cautious buyer activity kept the market tight, even as home prices continued to move higher.

Policy Developments and Global Tensions

Tariffs, shifting trade dynamics, and rapid technology adoption shaped parts of the economic landscape throughout the year. Capital continued flowing toward areas such as AI, automation, and domestic manufacturing. Geopolitical tensions persisted at a simmer, contributing to a consistently elevated level of background uncertainty. Rather than responding to individual flashpoints, many investors focused on building flexibility into their portfolios.

What Stood Out Across the Economy

The U.S. avoided recession and expanded at roughly a 2% pace, though the benefits were uneven. AI‑driven industries played an outsized role in supporting output, while manufacturing and wage growth lagged. Inflation moved closer to the Federal Reserve’s target, settling in the high‑2% range by year‑end, though housing and tariff‑related pressures added bumps along the way. Markets also navigated recurring periods of volatility driven by policy announcements and geopolitical concerns.

Looking Ahead to 2026

As we move into 2026, the landscape includes both opportunity and caution. Moderating inflation and positive earnings trends offer constructive signals, but factors such as higher tariffs, sustained deficit spending, and a maturing AI cycle call for disciplined positioning. Staying diversified and favoring companies with strong balance sheets and consistent cash flows may help investors navigate the year ahead.

If you’d like guidance tailored to your situation, our financial team is here to help you review your strategy and plan for the year ahead.