Fourth Quarter 2025: Three’s a Crowd (Pleaser)
US equities demonstrated remarkable resilience, securing a rare third consecutive year of double-digit gains in 2025. Despite the highest effective tariff rates since 1935 and significant geopolitical uncertainty, the S&P 500 rose 18%. Strong performance was supported by robust corporate earnings growth, Federal Reserve rate cuts, and the ongoing buildout of artificial intelligence (“AI”) infrastructure and technology.
AI remained a dominant market driver this year. Still, the AI-driven rally has led to historic levels of market concentration, with the tech sector’s weighting in the S&P 500 reaching a record 36%, breaching the previous high set in 2000 during the Dot-Com bubble. Just five stocks—led by Nvidia, which became the first company to exceed a $4 and then $5 trillion valuation—accounted for nearly 45% of the S&P 500’s total return in 2025.
While US tech thrived, 2025 was equally defined by a pivot toward foreign markets and commodities. A bounce-back year for both international developed (+31%) and emerging market (+34%) stocks, coupled with the dollar’s weakest performance since 2017, drove investors abroad. Non-US stocks outperformed their US counterparts by the widest margin since 2009. South Korea’s Kospi surged over 75%, its best year since 1999, while in London, the FTSE 100 saw its best year since 2009. Lacking a heavy tech sector focus, European markets saw a value-driven rally led by banks and defense companies. Gold posted its best year since 1979 (+65%), with silver and other precious metals also soaring as investors sought hedges against macro uncertainty – and a further dollar decline.
Looking to the year ahead, the Federal Reserve continues to navigate a complex landscape of sticky inflation and stalling job growth. Still, markets expect the Fed to continue its rate-cutting cycle in 2026.