Winter 2026 
^{Volume 34 | No. 1}

Market QuickTakes Q4 | 2025

Discipline, Diversification, and Resilience Reward Investors

2025 proved to be a strong year for nearly all major asset classes. Investors who remained disciplined through the spring’s tariff-driven volatility were well rewarded—particularly those with diversified portfolios that included international equities. Despite periods of uncertainty, markets demonstrated notable resilience, ending the year on solid footing.

U.S. stocks capped a tumultuous but ultimately rewarding year with strong fourth-quarter gains and multiple new all-time highs, even as markets dipped modestly in late December following a quiet November. The S&P 500 delivered its third consecutive year of double-digit gains, a rare achievement that has occurred only three times since 1952.

International equities broadly outperformed U.S. markets in 2025, posting their strongest gains since 2019. A 9.4% decline in the U.S. dollar provided a meaningful tailwind, accounting for roughly one-third of international returns. Bonds also delivered a strong comeback year as the Federal Reserve cut policy rates three times and interest rates declined across the yield curve.

Key Q4 | 2025 Highlights:

• The S&P 500 set 38 new all-time highs in 2025, with all major U.S. equity benchmarks reaching record levels. The Dow closed above 48,000 for the first time.
  
• The Dow Jones Industrial Average led U.S. indexes in Q4 with a 3.6% gain, while the Nasdaq topped all major U.S. indexes for the full year, rising 20.4%, driven by continued enthusiasm around artificial intelligence.
  
  
• Market leadership broadened meaningfully beyond the “Magnificent Seven,” an encouraging sign reflecting a resilient economy. Corporate earnings growth for 2025 is expected to reach 10%–12%, supporting elevated equity valuations.
  
  
• The last comparable three-year streak of double-digit gains for U.S. stocks occurred from 2019–2021. Notably, 2025 marked the first time in 20 years that the S&P 500 was the worst-performing major equity market globally, according to JPMorgan.
  
  
• Volatility spiked sharply during the April tariff sell-off—reaching its highest levels since the early days of COVID—but eased for most of the year as reciprocal tariffs were reduced and equities recovered. A 43-day government shutdown added uncertainty late in the year, delaying key economic data.
  
  
• Overseas markets significantly outperformed U.S. stocks. The MSCI EAFE Index gained 27.9%, while the MSCI Emerging Markets Index surged 30.6%, the strongest performance among major equity benchmarks.
  
  
• The Federal Reserve cut interest rates three times in 2025, totaling 0.75%, less than initially expected as inflation moderated but remained above target. The cooling labor market helped ease rate pressures.
  
  
• Bonds enjoyed their best year since 2020, with the Bloomberg U.S. Aggregate Bond Index gaining 7.3%. The 10-year Treasury yield fell 0.40% to 4.18%, while gold and silver reached historic highs.

The Outlook:

Cautious Optimism Balanced by Discipline and Resiliency

After three consecutive years of double-digit market gains, forecasts for 2026 from leading strategists remain broadly constructive, with expected returns in the high single-digit to low double-digit range. U.S. corporate earnings growth is still projected to be double-digit, a backdrop that would support continued elevated equity valuations.

That said, history suggests that while markets can continue to advance after a strong run, achieving a fourth straight year of double-digit returns is relatively rare. As a result, while we remain cautiously optimistic about another positive year for equities, we are tempering expectations toward mid-single-digit returns.

The U.S. economy continues to show resilience, with 2026 GDP growth expectations moderating to around 2% by most forecasts. Consumer spending and AI remain key drivers, even as job growth shows signs of slowing, while tax cut stimulus may counter. Recession risk is low for 2026, though growing concerns over the ‘K-shaped’ economy remain. 

Inflation, however, remains sticky and above the Federal Reserve’s target, limiting the scope for additional policy easing. Regardless of who ultimately succeeds Chair Jay Powell, expectations for further rate cuts remain modest—likely one to two at most.

More importantly, maintaining Fed independence is critical. Additionally, with interest rates having normalized over the past two years, higher yields now provide a meaningful buffer against equity volatility.

International markets also present attractive opportunities, supported by more compelling valuations, fiscal stimulus, improving economic and earnings growth prospects, and the benefits of diversification. Modest further weakness in the US dollar is anticipated in 2026, and thus look for more of a slight tailwind rather than the gale force in 2025.

Looking more broadly, geopolitical tensions and rising domestic unrest continue to pose risks, and market volatility remains a key feature of the outlook for 2026. As a midterm election year, history also suggests volatility may run above average.

In this environment, we encourage investors to remain committed to disciplined investing, broad diversification, and thoughtful risk management aligned with personal objectives and tolerances. We remain cautiously optimistic, focused on the long term and look forward to the opportunities 2026 may present.

Investor Takeaways
•    Remain well-diversified
•    Maintain discipline and patience
•    Keep focus on the long term
•    Review your risk tolerance

Call your Nelson Advisor today at 800-345-7593 to discuss your portfolio and any concerns.

~ Your Nelson Securities Team

Past Performance is No Guarantee for Future Success