Financial Markets and Economic Trends Through 2025

The past year delivered a combination rarely seen: solid economic growth, easing inflation, and strong market performance—despite a steady stream of uncertain headlines. Together, these dynamics offered a reminder that progress doesn’t always unfold in a straight line. Below is a look at what shaped markets and the economy in 2025, along with themes that may carry into the new year. Our mission to connect your money with your heart burns even stronger in the new year.  Advancements in productivity through technological advances in recent years allows us to focus on what's really important to you.  As many leaders of industry and technology believe, we also feel artificial intelligence will not replace the human element of the guidance, however the advisor that does not utilize these new tools might. 

Tech‑Driven Equity Gains

U.S. stocks posted broad double‑digit gains in 2025, marking the third straight year of strength for large‑cap equities. Results were highly concentrated, with technology and AI‑aligned companies pushing major indices toward record levels. Market leadership remained narrow, yet strong earnings—rather than expanding valuations—played the central role in lifting share prices. International equities also advanced meaningfully, adding to the year’s global momentum.

Rate Cuts and a Complicated Housing Picture

The Federal Reserve shifted from a “higher for longer” stance to a gradual easing path, cutting rates three times over the year. Treasury yields trended lower, and high‑quality bonds delivered positive total returns after a difficult stretch marked by rising rates. Core bonds resumed their role as portfolio stabilizers, while credit conditions remained generally steady even as certain lower‑quality segments showed potential pressure points.

Housing remained challenged despite modest declines in mortgage rates. Prices edged higher, and activity stayed sluggish, reflecting ongoing affordability issues and limited inventory. For households considering moves, rate improvements offered some relief but not enough to meaningfully open the supply‑demand gap.

Policy and Geopolitics Set the Backdrop

Policy actions created a persistent undercurrent for markets. Higher tariffs and continued investment in new technologies reshaped portions of the U.S. economy, channeling spending toward AI, automation, and domestic production. Geopolitically, the year delivered steady tension rather than a single defining event. Issues ranging from supply‑chain vulnerabilities to emerging cyber and AI‑governance debates contributed to elevated uncertainty and recurring volatility.

Economic Themes That Defined the Year

The U.S. economy expanded at a steady 2% pace, although the gains were not even across sectors. AI‑driven industries and large technology companies benefited the most, while manufacturing softened and wage growth cooled. Inflation moved closer to the Federal Reserve’s comfort zone, settling in the high‑2% range by year‑end, though tariff effects and housing costs created a few late‑year bumps. Alongside these developments, market concentration persisted, with a small group of mega‑cap companies contributing a large share of equity gains.

Looking Ahead to 2026

As 2026 begins, there are reasons for both optimism and caution. Moderating inflation, ongoing earnings growth, and the resilience of key sectors support the economic backdrop. At the same time, rising tariffs, continued deficit spending, and a maturing AI cycle underscore the importance of disciplined portfolio positioning. Diversification, strong balance sheets, steady cash flows, and valuation awareness may play meaningful roles in navigating the months ahead.

As always, we encourage readers to reach out to our financial team for personalized guidance and support as they plan for the year ahead.