Holiday Wrap Up: A Look Back at 2025
The year in brief. In 2025, two different types of “trade” captured the attention of market participants: the artificial intelligence (AI) trade and a new U.S. trade policy from a new White House administration—and the world’s reaction to it. These two factors drove much of the market’s direction throughout the year.
Economic tailwinds so far this year have helped stocks overcome headwinds. An overall resilient economy, robust consumer spending, decelerating inflation (over the first four months of the year), Fed rate cuts, strong corporate quarterly results, and a sustained AI trade—particularly among megacap tech chipmakers. These positive elements powered all three major U.S. market averages to double-digit gains for the year through mid-November. Non-U.S.-based stocks in the aggregate soared even higher year to date.1
Headwinds this year were formidable, making the economy’s strength all the more remarkable. Economic uncertainty, stemming from tariffs, ongoing concerns about inflation, a record-long government shutdown, stock valuation concerns, and a struggling labor market, all vexed investors. Geopolitical tensions in the Middle East—particularly over the summer—also dampened market sentiment.
The U.S. economy. After contracting by a half percent in Q1, the economy picked up as the year progressed. Strong consumer spending drove 3.8 percent gross domestic product (GDP) growth over the second quarter (revised sharply higher from an initial estimate of 3.0 percent), and an estimated 4.0 percent GDP growth in the third quarter.2,3
Investors faced uncertainty in the second and third quarters regarding how U.S. tariffs on imports might affect corporate earnings and the broader economy. After businesses and consumers ramped up spending in March, before new tariffs took effect, activity dropped off in April and May as companies and consumers alike paused to assess the impact of this new trade environment on the cost of goods and retail prices.4
The labor market has shown some signs of strain this year. Job growth has slowed considerably, from a monthly peak of 158,000 jobs added in April to a bottom of 13,000 jobs lost in June. The latest Labor Department employment stats available before the government shutdown show a stronger-than-expected rebound of 119,000 jobs added in September–the largest monthly gain since April. It’s still uncertain where job growth will go from here. ADP’s latest jobs report showed private employers added 42,000 jobs in October, nearly double the 22,000 new jobs economists expected and a welcome rebound from the 29,000 private sector jobs lost in September. While unemployment has remained in a historically low range of 4.0 to 4.2 percent through most of 2025, it ticked up in September to 4.4 percent—the highest level in four years.5,6,7
The pace of inflation has remained relatively low and decelerated over the first four months of the year, with the Consumer Price Index (CPI) reaching a 2.3 percent year-over-year rate in April. However, the CPI steadily increased to 3 percent as the year progressed. This leads us to the Fed, for which keeping inflation low is one of its dual policy goals.8
The Fed Funds Rate target range began the year at 4.25-4.50 percent. The Fed held rates steady at that level for five consecutive Federal Open Market Committee (FOMC) meetings through July. But by the middle of Q3, the Federal Reserve began to hint at its growing concern for the labor market. At its September meeting, the Fed cut rates by a quarter percentage point and penciled in two more quarter-point cuts through the end of the year. While they followed through with one of those cuts at the October meeting, the Fed has been telegraphing that another cut before the end of the year was not a foregone conclusion. The absence of BLS data and backlog of reports due to the government shutdown has hampered the Fed’s ability to make fully informed calls on monetary policy. Please note that forecasts are based on assumptions and are subject to revision as new information becomes available. Financial, economic, political, and regulatory issues may cause the actual results to differ from the expectations expressed in the Fed’s forecast.9,10,11
Overall, strong corporate quarterly results—particularly in the face of considerable economic uncertainty—have helped deliver a solid performance for stock market averages so far in 2025. Much of that performance was driven by AI-related megacap tech companies that significantly impact the overall performance of the S&P 500 Index and the Nasdaq Composite. For the year through mid-November, the S&P 500 rose 14.5 percent while the Nasdaq clocked an 18.6 percent gain. The Dow Jones Industrials lagged but still advanced 10.8 percent.12
The global economy. Major global events in 2025 – including post-pandemic supply disruptions, a weaker global growth outlook, and fluctuating energy prices – combined with central banks’ staggered rate moves, are shaping markets. European equities benefited from resilient exports and strength in cyclical sectors of the economy. Japan gained on the back of a weak yen. Trade friction and targeted tariffs, particularly the U.S.-China dynamics and EU duties on Chinese electric vehicles, impacted supply chains. Sticky core inflation was another dynamic that kept volatility elevated, resulting in performance that varied considerably from country to country.13,14
This led to non-U.S. stocks in developed global markets, in aggregate, posting their best performance in years. The MSCI EAFE Index surged 24.7 percent for the year through November 14. In Europe, Spain (+66.1 percent) led the major developed markets, with Italy (+45.8 percent), Germany (+28.1 percent), the United Kingdom (+24.5 percent), and France (+23.9 percent) all posting high double-digit returns, albeit lagging. While all other European markets also saw double-digit gains, Denmark (-20.5 percent) was the one outlier. In the Pacific region, Korea topped them all with an eye-popping 79.6 percent gain. Hong Kong (+33.7 percent) and Japan (+22.9 percent) saw similar returns to Europe, while Australia (+8.1 percent) managed a modest gain.15
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, including differences in financial reporting standards, currency exchange rates, country-specific political risks, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
Looking back, looking forward. As we head into 2026, the labor market will remain a key area of concern for investors, with a focus on unemployment and job growth trends. While the pace of inflation has moderated to a level close to the Fed’s target, recent upticks will be watched closely by economists and investors alike. Any future Fed rate moves will also continue to impact markets.
As the government has reopened, the BLS will continue to work on a backlog of key economic reports, including employment and inflation, that the Fed will need to analyze to determine the shape of monetary policy going forward.
Investors will also continue to monitor stock valuations and quarterly results for AI-related tech companies next year, given the significant role AI played in driving market gains in 2025. While trade policy and tariffs may take on less emphasis in the year ahead, the U.S. consumer will remain a key focus, as the majority of GDP is derived from consumer spending.
Regardless of what the future holds, it’s essential to prepare. That’s why we work with our clients to align their financial strategy with their goals, time horizon, and risk tolerance. We understand that the economy will move through cycles, so we strive to keep you updated during both the highs and the lows.
Have a wonderful holiday season and a great 2026.
Centrus Financial Strategies
Citations
- WSJ.com, November 14, 2025
- WSJ.com, September 25, 2025
- Atlanta Federal Reserve, October 27, 2025
- TradingEconomics.com, November 14, 2025
- TradingEconomics.com, November 20, 2025
- TradingEconomics.com, November 20, 2025
- WSJ.com, November 20, 2025
- TradingEconomics.com, November 14, 2025
- WSJ.com, March 19, 2025
- CNBC.com, June 24, 2025
- WSJ.com, October 29, 2025
- WSJ.com, November 14, 2025
- World Economic Forum, November 11, 2025
- T. Rowe Price, November 14, 2025
- MSCI.com, November 17, 2025
Financial planning and investment advisory services are offered through Prosperity Capital Advisors (PCA), an SEC-registered investment advisor. For more information, please visit www.adviserinfo.sec.gov.
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