Financial Markets and the Economy: A Look Back at 2025

The past year delivered a blend of steady economic progress, easing inflation, and strong market performance, even as uncertainty captured headlines. Below is a recap of what shaped the financial landscape in 2025, which trends may continue into the new year, and where both opportunities and caution remain in focus.

U.S. Markets Driven by Tech Momentum

Equities delivered broad double‑digit gains in 2025, marking the third year of strong performance for large‑cap stocks. Results were concentrated, with technology and AI‑linked companies providing much of the lift. Major indices reached or approached record levels, supported primarily by improved earnings rather than rising valuations. International markets also advanced meaningfully, contributing to a strong global backdrop.

Rates Eased While Housing Stayed Tight

The Federal Reserve shifted from holding rates steady to implementing three quarter‑point cuts in 2025, helping push Treasury yields lower through the year. Core bonds regained their role as steady diversifiers, offering positive total returns after a challenging period.

Housing, however, remained sluggish. Mortgage rates moved lower, but higher home prices and limited supply kept activity muted. While affordability remained strained, rate stabilization created some openings for households exploring a move.

Policy Shifts and Geopolitics Added Complexity

Tariff changes, technological acceleration, and geopolitical tensions created a steady backdrop of policy‑driven noise. Industries tied to AI, automation, and domestic manufacturing received a boost, while trade‑sensitive sectors felt more pressure. With global risks evolving rather than erupting, flexible and well‑tested portfolios proved increasingly important.

Economic Themes Throughout 2025

The U.S. economy expanded at a 2% pace, though the gains weren’t evenly distributed. AI‑driven industries and large technology firms continued to lead, while manufacturing and wage growth softened. Inflation moderated toward the Fed’s preferred range by year‑end, though progress fluctuated as housing costs and tariff effects played a role.

Markets also navigated frequent moments of volatility sparked by policy announcements and global developments. Concentration among the largest technology names persisted, underscoring the importance of maintaining diversification.

Looking Ahead to 2026

The resilience of 2025 reinforced that markets can advance even when the broader environment feels uncertain. Earnings growth and moderating inflation provided essential support. As 2026 begins, rising tariffs, ongoing deficit spending, and a maturing AI investment cycle suggest a period that calls for balance. Diversification, strong company fundamentals, and attention to valuations may be especially important in the months ahead.

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