Stocks Finish Strong 2025; Bonds Gain Modestly
Good morning, and Happy New Year! We hope that everyone had a wonderful holiday season, and we look forward to a healthy and prosperous 2026. Sit back, because today will be a little longer than usual, as we provide data from 2025 and a synopsis of the weekend’s geopolitical event in Venezuela.
The table below shows the major market indices for last week and for 2025. As demonstrated by the table, stocks had a terrific year, with all major stock indices exceeding double-digit returns. Further, international stocks outperformed US stocks for the first time since 2017, with much of that being the result of a sharp decline in the dollar in early 2025. Bonds also gained 7.3%, as the 10-year Treasury yield fell 0.40% to finish the year at 4.17%. Note that the 10-year Treasury yield serves as the basis for mortgage rates, which explains the drop in 30-year mortgage rates to about 6.2%. The current 30-year mortgage rate is about 0.5% lower than the start of 2025 and near its lowest level since 2022.
Technology stocks, particularly Google and Nvidia, led the way in 2025. Much like 2023 and 2024, the artificial intelligence (AI) story also captured the headlines for 2025, but those stocks came under pressure in the latter part of the year as investors are beginning to get concerned about the massive capital spending and little revenue to justify it. Another benefactor of AI is the energy sector. The demand for energy is exploding to provide the power to the data centers for the AI technology. Given that nuclear power is a clean, reliable, and powerful source of energy, much attention has been focused on the resurgence of nuclear power. As a result, many companies that provide nuclear power or service the nuclear power industry have shown a strong surge in their stock prices in 2025.
In 2025, the Fed cut interest rates three times, which provided fuel to the stock and bond markets, as it allows for companies to borrow money at lower rates. Last year also saw a steady and continued drop in inflation, but that rate slowed toward the end of the year. Also, the labor market showed some signs of stress at the end of 2025 but still remains resilient. The unemployment rose to 4.6%, up from about 4.1% at the beginning of 2025. Gross Domestic Product (GDP – a measure of the US economy) surprised to the upside in 2025, particularly in the third quarter, as it gained 4.3%. Lastly, consumer spending, which represents almost 70% of the US economy, has continued to be strong, even considering the labor market slowing toward the end of the year.
Looking ahead, 2026 has a promising outlook, as the consensus for corporate earnings growth is projected to be 14.85%, compared to 12.34% for 2025 (source: Manulife / John Hancock Investments). Additionally, it is estimated that about $400 billion will flow into the economy due to tax refunds, about a third of which is a result of the OBBBA tax bill that was signed into law in July 2025. Further, a new Fed Chairman is expected to replace Chairman Powell in May, and it is widely expected that the new Fed chairman will ease monetary policy, which could spark economic activity. That said, all this influx of money into the economy is raising concerns of inflationary pressure. Please note that I will be filming podcast / YouTube episodes with Brad Sorensen, CFA, reflecting on 2025 and looking ahead to 2026. These episodes will air weekly beginning on Wednesday, January 14th.
Lastly, US forces captured the leader of Venezuela over the weekend. Nicolas Modura was removed from power and placed under arrest for drug trafficking and weapons crimes. This has drawn political controversy in the US, but was seemingly applauded by the citizens of Venezuela, as Mr. Modura was an unpopular dictator. The geopolitical and economic fallout from this is yet to be determined, but Venezuela has reportedly the largest oil reserves in the world. In my opinion (much like Brexit from several years ago), a big reaction by the markets would likely be short-lived, as the financial impact will take many years to come to fruition.
Have a great day and terrific week.
Source: Yahoo Finance
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The NASDAQ Composite Index measures all NASDAQ domestic and non-U.S. based common stocks listed on The NASDAQ Stock Market. The market value, the last sale price multiplied by total shares outstanding, is calculated throughout the trading day, and is related to the total value of the Index. Government bonds and Treasury bills are guaranteed by the US government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
