Market Performance Overview
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Global equity markets delivered another outstanding year in 2025, with strong returns across nearly all regions. International stocks led the way, as developed international markets returned approximately 31% for the year while emerging markets gained 34%. U.S. stocks also produced solid gains, with the S&P 500 up roughly 18%.
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Fixed income returns were also positive in 2025. Broad bond markets returned approximately 7% as yields declined across much of the curve and income remained attractive.
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While markets were strong, the economic backdrop grew more complicated late in the year, as tariffs, a federal government shutdown, and declining immigration weighed on growth. Despite these headwinds, resilient consumer spending and ongoing investment in artificial intelligence infrastructure helped support economic activity.
Economic Update
Economic growth has been uneven in 2025 as trade policy, shifting government spending priorities, geopolitical tensions, and AI investment impact changes from quarter to quarter. Expectations are for GDP growth of slightly less than 2% for 2025. As we look ahead there are a range of factors that are expected to influence growth in the near-term. While tariffs, immigration policy, and general uncertainty may weigh on growth in 2026, however, easier financial conditions, fiscal spending, increasing productivity, and deregulation may offset these effects leading to improved growth in 2026. In understanding the economy, it is important not to focus on one issue but to see how these pieces impact the overall picture.
Looking at the labor markets, the unemployment rate recently ticked up to 4.6%. Declining job growth has been offset mostly by a lower labor supply due to lower immigration. Looking ahead the unemployment rate is expected to edge down in 2026 as slightly improved job growth is met with a flat or declining working age population.
It has been hard to get a clear picture on inflation due to delays in government data. Registering At 2.7% in November, inflation remains above the Federal Reserve’s target of 2% and could tick up further in the first half of 2026 as tariff costs continue to be passed through and higher tax refunds support consumption.
As policymakers balance their dual-mandate of full employment and stable prices, expectations are for additional interest rate cuts in 2026. Market projections are for the Fed Funds rate to decline to around 3% by year end in an effort to support labor markets.
Equity Recap
Global equities deliverd another strong year, returning 22% in 2025. International equities were the clear leaders in 2025, with developed international returning 31% in 2025 and emerging markets returning 34% for the year. Overall, international stocks outperformed U.S. stocks by approximately 14.5%. Currency translation alone contributed roughly 8% of that outperformance as the U.S. dollar weakened meaningfully over the course of the year.
Besides currency impacts, international stocks also started the year trading at significantly lower valuations than U.S. stocks, leaving more room for multiple expansion. They also benefitted from easier monetary policy, and increased allocations from investors to international equities.
U.S. stock performance was still solid in 2025. The S&P 500 returned 18% for the year including a 40% return from the lows experienced in April. The drivers of performance have also broadened out as the top 10 stocks contributed less than 50% of the return for US Large Caps for the first time in a few years.
After three years of strong returns, stock valuations are extended relative to historical averages. While valuations are not a strong indicator of performance over the near-term, they leave investors more at risk if companies are unable to meet expectations or the economy hits a road bump. However, there are factors that point to why stocks may trade at higher valuations than in the past. These include improvements in capital markets and investor trading costs, lower tax rates, and higher profit margins due to the rise of asset-light, scalable companies.
Chart Source: Dimensional Fund Advisors
Fixed Income Recap
After a decade of muted returns from 2013 through 2022, bonds have now delivered several consecutive years of solid performance. In 2025, broad fixed income markets returned approximately 7%, supported by attractive starting yields and a decline in interest rates.
Interest rates fell across most of the yield curve, particularly in the 1- to 10-year maturity range, as interest rate cuts pulled down shorter-term rates and investors anticipated slower economic growth.However, long-term rates stayed steady as concerns around fiscal spending and the potential for inflation longer-term supported yields.
Although spreads in credit sectors have tightened, quality fixed income continues to offer attractive yields and provide a ballast to portfolios.
Chart Sources: Federal Reserve Bank of St. Louis; Dimensional Fund Advisors: Intermediate bonds are represented by the Bloomberg Intermediate Government Credit Index
Takeaways & Outlook
Looking back on 2025, it was a great year for investors. Performance was strong across asset classes as market survived concerns around trade policy, geopolitical tensions and other headlines. Investors benefitted from diversification with international stocks and bonds boosting portfolios while US stocks sold off. Those who stayed into the markets through the volatility were rewarded with double-digit returns.
Looking at 2026, investors still have questions about how the combination of trade policy, the new tax law, interest rate decisions, and AI investment will impact markets. Forecasters are calling for another year of solid earnings growth for stocks, although we know this can change. With valuations above historical norms, there is more risk for stock prices the economy hits a rough patch. Bond yields remain attractive, and offer a solid source of income while also providing potential downside protection.
During times like this, we remain focused on the consistent implementation of the long-term plan we have put in place for clients and believe that this will continue to yield successful outcomes. If you are not a client and have not stress-tested your portfolio or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
4th Quarter 2025 Commentary
Contributed by: Dan Haines, CFP®, CFA
Market Performance Overview
Global equity markets delivered another outstanding year in 2025, with strong returns across nearly all regions. International stocks led the way, as developed international markets returned approximately 31% for the year while emerging markets gained 34%. U.S. stocks also produced solid gains, with the S&P 500 up roughly 18%.
Fixed income returns were also positive in 2025. Broad bond markets returned approximately 7% as yields declined across much of the curve and income remained attractive.
While markets were strong, the economic backdrop grew more complicated late in the year, as tariffs, a federal government shutdown, and declining immigration weighed on growth. Despite these headwinds, resilient consumer spending and ongoing investment in artificial intelligence infrastructure helped support economic activity.
Economic Update
Economic growth has been uneven in 2025 as trade policy, shifting government spending priorities, geopolitical tensions, and AI investment impact changes from quarter to quarter. Expectations are for GDP growth of slightly less than 2% for 2025. As we look ahead there are a range of factors that are expected to influence growth in the near-term. While tariffs, immigration policy, and general uncertainty may weigh on growth in 2026, however, easier financial conditions, fiscal spending, increasing productivity, and deregulation may offset these effects leading to improved growth in 2026. In understanding the economy, it is important not to focus on one issue but to see how these pieces impact the overall picture.
Looking at the labor markets, the unemployment rate recently ticked up to 4.6%. Declining job growth has been offset mostly by a lower labor supply due to lower immigration. Looking ahead the unemployment rate is expected to edge down in 2026 as slightly improved job growth is met with a flat or declining working age population.
It has been hard to get a clear picture on inflation due to delays in government data. Registering At 2.7% in November, inflation remains above the Federal Reserve’s target of 2% and could tick up further in the first half of 2026 as tariff costs continue to be passed through and higher tax refunds support consumption.
As policymakers balance their dual-mandate of full employment and stable prices, expectations are for additional interest rate cuts in 2026. Market projections are for the Fed Funds rate to decline to around 3% by year end in an effort to support labor markets.
Equity Recap
Global equities deliverd another strong year, returning 22% in 2025. International equities were the clear leaders in 2025, with developed international returning 31% in 2025 and emerging markets returning 34% for the year. Overall, international stocks outperformed U.S. stocks by approximately 14.5%. Currency translation alone contributed roughly 8% of that outperformance as the U.S. dollar weakened meaningfully over the course of the year.
Besides currency impacts, international stocks also started the year trading at significantly lower valuations than U.S. stocks, leaving more room for multiple expansion. They also benefitted from easier monetary policy, and increased allocations from investors to international equities.
U.S. stock performance was still solid in 2025. The S&P 500 returned 18% for the year including a 40% return from the lows experienced in April. The drivers of performance have also broadened out as the top 10 stocks contributed less than 50% of the return for US Large Caps for the first time in a few years.
After three years of strong returns, stock valuations are extended relative to historical averages. While valuations are not a strong indicator of performance over the near-term, they leave investors more at risk if companies are unable to meet expectations or the economy hits a road bump. However, there are factors that point to why stocks may trade at higher valuations than in the past. These include improvements in capital markets and investor trading costs, lower tax rates, and higher profit margins due to the rise of asset-light, scalable companies.
Fixed Income Recap
After a decade of muted returns from 2013 through 2022, bonds have now delivered several consecutive years of solid performance. In 2025, broad fixed income markets returned approximately 7%, supported by attractive starting yields and a decline in interest rates.
Although spreads in credit sectors have tightened, quality fixed income continues to offer attractive yields and provide a ballast to portfolios.
Takeaways & Outlook
Looking back on 2025, it was a great year for investors. Performance was strong across asset classes as market survived concerns around trade policy, geopolitical tensions and other headlines. Investors benefitted from diversification with international stocks and bonds boosting portfolios while US stocks sold off. Those who stayed into the markets through the volatility were rewarded with double-digit returns.
Looking at 2026, investors still have questions about how the combination of trade policy, the new tax law, interest rate decisions, and AI investment will impact markets. Forecasters are calling for another year of solid earnings growth for stocks, although we know this can change. With valuations above historical norms, there is more risk for stock prices the economy hits a rough patch. Bond yields remain attractive, and offer a solid source of income while also providing potential downside protection.
During times like this, we remain focused on the consistent implementation of the long-term plan we have put in place for clients and believe that this will continue to yield successful outcomes. If you are not a client and have not stress-tested your portfolio or do not have a well-designed plan to navigate uncertain times, perhaps now is the time to do so. We stand ready and available to assist you.
Dan Haines, CFP®, CFA
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