2025 Year-End Market Commentary
The Goldilocks Balancing Act
Global markets closed 2025 on a strong but increasingly balanced footing, with solid equity gains, improving bond performance, and broader leadership across regions and sectors. U.S. large caps delivered a strong year as the S&P 500 rose 17.9% including dividends, though Q4 marked a rotation away from mega-cap tech toward smaller-cap stocks, defensive growth, and higher-quality cyclicals. International equities outperformed the U.S., aided by firmer global growth and a weaker dollar, while bonds rallied as the Fed pivoted to rate cuts in the second half of the year. Within sectors, leadership shifted meaningfully, with Health Care and Communication Services leading gains, Technology cooling amid valuation-driven profit-taking, and Real Estate lagging under refinancing pressures and structural office challenges, all against a backdrop of resilient but moderating U.S. economic growth, easing inflation, and a gradually cooling labor market.
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Disclosures:
Unless otherwise specified, all performance references for any index or investment reflect total return, which includes price changes, interest and dividends, and are quoted in US dollar returns. Unspecified indices include: "Value stocks" = Russell 1000 Value Index; "Growth stocks" = Russell 1000 Growth Index; "Large cap stocks" = S&P 500; "Midcap stocks" = Russell Midcap Index; "Small cap stocks" = Russell 2000 Index; individual sectors = the respective sector indices within the S&P 500; "US dollar" = Federal Reserve Bank of St. Louis' Broad Trade Weighted US Dollar Index; "International Developed Market Stocks" = MSCI EAFE (Europe, Asia, Far East) Index; "International Emerging Market Stocks" = MSCI Emerging Markets Index; individual countries = the respective country indices produced by MSCI; "Short-term bonds" = Bloomberg US Govt/Credit 1-3 Yr Index; "Long-term bonds" = Bloomberg US Long Govt/Credit Float Adjusted Index; "Treasury bonds" = Bloomberg US Treasury Index; "Corporate bonds" = Bloomberg US Corporate Bond Index; "High yield bonds" = Bloomberg US Corporate High Yield Index; "Emerging market bonds" = Bloomberg EM Debt USD Aggregate Index; real estate sector indices = the respective sector indices within the FTSE NAREIT REITs Indices.
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