2025 Market and Economic Overview: Strong Gains Amidst Policy Uncertainty
In 2025, the S&P 500 increased by about 17%, the Nasdaq Composite rose approximately 21%, and the Russell 2000 grew around 12%. The spring of 2025 saw tariffs trigger a near bear market for the S&P 500, with the Nasdaq and Russell briefly entering bear markets as well. However, markets rebounded after these tariffs were rolled back. Year-end momentum was driven by strong corporate profits and increased spending on artificial intelligence (AI), with expectations for 2026 outlooks to remain strong due to anticipated lower borrowing costs.
The top five AI-linked stocks – Nvidia, Apple, Microsoft, Amazon, and Alphabet – now account for about 30% of the S&P 500, leading to debate over whether current AI valuations indicate a bubble. Earnings breadth improved beyond the technology sector, highlighted by growth among average-sized companies in Q3 2025, and an ongoing rotation away from Big Tech stocks.
Commodity markets saw gold rise approximately 70% in 2025, while Bitcoin finished slightly lower after earlier gains amid policy uncertainty. Policy risk remains from tariff headlines and ongoing trade negotiations with international partners. Additionally, unemployment rose to 4.6% in November, marking a four-year high. The Federal Reserve faces uncertainty in leadership as Chair Jerome Powell's term ends in May 2026, with former President Trump expected to appoint a replacement viewed as favorable to easing borrowing costs.
The economy showed solid performance, with GDP growing at an annualized rate of 4.3% in Q3 2025, the strongest growth in two years, up from 3.8% in the prior period.
