Financial Markets and the Economy: A Look Back at 2025
The year we just wrapped up delivered a mix of steady economic progress, easing inflation, and solid market performance—all while headlines frequently pointed to uncertainty. As we revisit the key market and economic trends of 2025, we highlight what shaped the landscape and which themes may continue influencing the path forward.
Tech Leadership Drove U.S. Stock Gains
U.S. stocks closed 2025 with broad double‑digit gains, marking the third consecutive year of strength in large‑cap equities. Market performance was led once again by technology and AI‑focused companies, which helped lift major indices to or near record levels. Earnings growth—rather than expanding valuations—was the primary driver behind these results, with tech and financial firms standing out.
International markets also advanced meaningfully, with global equities outside the U.S. showing notable strength. At the same time, sector performance within the U.S. varied, underscoring the importance of selectivity for investors navigating a concentrated market environment.
Falling Rates and a Mixed Housing Picture
The Federal Reserve shifted toward a gradual easing cycle in 2025, implementing three quarter‑point rate cuts after a period of restrictive policy. Treasury yields trended lower throughout the year, offering welcome support for bond investors. High‑quality fixed income provided positive total returns and resumed its role as a portfolio stabilizer, with calmer credit conditions reflecting an economy that avoided recession.
Housing, however, remained constrained. Even with mortgage rates declining over the year, limited affordability and low inventory kept activity subdued. Home prices continued edging higher, illustrating that elevated borrowing costs can slow movement without necessarily creating price relief.
Tariffs and Geopolitics Added to Market Frictions
Policy developments served as a steady backdrop in 2025. Higher tariffs and shifting investment toward AI, automation, and domestic manufacturing influenced several corners of the economy. Meanwhile, geopolitical tensions persisted at a low simmer rather than a single defining event. The combination of ongoing conflicts, supply‑chain concerns, and emerging debates around cybersecurity and AI governance contributed to a persistently elevated sense of risk.
In this environment, maintaining flexibility and preparing for multiple scenarios remained essential for long‑term planning.
Key Themes That Defined the Year
Economic growth continued at a solid pace around 2%, though the benefits were uneven. Research indicates that AI‑related development accounted for a significant portion of GDP gains, highlighting both the resilience and imbalances within the broader economy.
Inflation moved closer to the Federal Reserve’s target range by year‑end, though tariff effects and firm housing costs created some late‑year challenges. The Fed responded with incremental rate cuts, signaling a careful approach to future adjustments.
Markets also faced recurring volatility from policy announcements and geopolitical concerns. A small group of large technology companies continued to account for an outsized share of index gains, reinforcing ongoing conversations about market concentration.
Looking Ahead to 2026
The past year demonstrated that markets can advance even when the news cycle feels uncertain. Strength in earnings and progress on inflation helped support performance despite political and labor‑market crosscurrents.
As we move into 2026, we see a balanced backdrop—one that includes both opportunities and risks. Higher tariffs, continued deficit spending, and a maturing AI investment cycle suggest the importance of staying disciplined. Focusing on diversification, durable balance sheets, consistent cash flows, and thoughtful valuation may help investors position themselves effectively for the year ahead.
If you’re considering how these themes may impact your financial plan, we encourage you to connect with our financial team for personalized guidance and support.