Tech Strength Defined a Year of Broad Market Gains

U.S. stocks closed 2025 with broad double‑digit returns, marking a third straight year of strong performance for large‑cap equities. Market leadership remained concentrated, with technology and AI‑linked companies lifting major indices toward record levels. Corporate earnings—not rising investor premiums—were the primary driver of higher stock prices, though results varied widely across sectors. International equities also advanced, with the MSCI All Country World ex‑USA index posting notable gains.

A Shift in Interest Rates, but Limited Housing Relief

The Federal Reserve implemented three quarter‑point rate cuts in 2025, signaling a gradual shift away from its prior “higher for longer” stance. Treasury yields declined through the year, bringing welcome relief to high‑quality fixed income, which returned to its role as a diversifier and source of steady income. Credit conditions remained generally stable, though lower‑quality segments warrant continued attention.

Housing, however, continued its slow pace. Mortgage rates fell from 6.91% to 6.15%, yet activity stayed muted. Home prices still edged higher, underscoring how elevated rates can freeze supply rather than lower costs. Affordability challenges persisted, making timing and financing strategies especially important for households considering a move.

Policy and Geopolitics Added Persistent Background Tension

Tariff changes and rapid technology adoption reshaped parts of the U.S. economy throughout the year. Capital flowed toward AI, automation, and domestic manufacturing, while some trade‑exposed and consumer‑facing industries faced added pressure. Global tensions remained steady rather than dramatic, as ongoing conflicts, supply‑chain vulnerabilities, and emerging debates around cyber and AI risks contributed to elevated risk premiums. Given this backdrop, maintaining flexibility and preparing for multiple scenarios remained important.

Economic Signals Showed Progress Amid Uneven Conditions

The economy expanded at a 2% pace in 2025, though the benefits were not evenly distributed. AI‑related investment drove a significant portion of GDP growth, supporting large technology companies while manufacturing lagged and wage growth moderated. Inflation moved closer to the Federal Reserve’s comfort zone, settling in the high‑2% range by year‑end, though tariffs and housing costs complicated the final stretch. The Fed’s rate cuts reflected a move toward a less restrictive posture while signaling caution about the path ahead.

Positioning for 2026

Despite political crosscurrents and a cooling labor market, moderating inflation and steady earnings helped support another year of market gains. Looking ahead to 2026, there are reasons for both optimism and attentiveness. Rising tariffs, continued deficit spending, and a maturing phase of AI investment point to an environment where disciplined portfolio construction may matter more. A focus on diversification, strong balance sheets, and reasonable valuations may help investors navigate the year ahead.

To discuss how these trends may affect your individual financial plan, we encourage you to reach out to our financial team for personalized guidance and support.