Fourth Quarter 2025 Review and Outlook

Written by Tim Rigby

According to The Wall Street Journal, the popular stock indexes posted returns for the quarter and year to date as follows:

 			                                                 Quarter		           Year

The Dow Jones Average 3.60% 13.00%

The S&P 500 2.35% 16.40%

The NASDAQ Composite 2.57% 20.40%

In some senses, 2025 was a “tale of two markets”.  The overall market did very well, while some stocks did exceptionally and others had a difficult time.  Technology again led the way (particularly due to the AI boom), although the quarter saw many sharp swings in tech as the market broadened out to other areas.

Two distinct themes have emerged that we are keeping our eye on as they have implications for the broader economy.  The first theme emerging is an overall strong economy - GDP is 4%+ the last few quarters, but with unusual areas of softness.  Most notably is the cooling labor market (perhaps due again to the widespread adoption of AI).  The soft spots may allow the Federal Reserve Bank to continue cutting interest rates which adds further strength to the economic boom.  When combined with the tax cuts that just kicked in January 1st, consumers will have billions in added spending power as the year goes on. Add it all up, and a number of economists are projecting exceedingly strong 5% to 6% overall growth with corporate earnings increasing around 15% for the new year.

The second theme is the United States trying to persuade other countries to stop their drug trade to the U. S., particularly those countries in the Western Hemisphere.  If political pressure isn’t successful, the administration is now capable of following through and arresting the leaders.  Will this upend trade and economic growth?  Or will it lead to even more growth as some of these countries try to return to capitalism?  This is a wild card this year.

Strategists are predicting the combination of the interest rate cuts and the tax policy changes should result in another very good year for stocks and an average year for bonds. However, our projection of the high valuations of tech stocks combined with geopolitical risks from theme #2 could result in extreme volatility at different times during the year. While we don’t typically try to time the stock market, it could pay to be cautious with new money early this year.  If we do get sharp dips, that could be a great time to buy if the economy grows anywhere close to what is being projected.  The consensus seems to think big tech stocks will do well but not great given their high valuations, while much of the rest of the stock market will have double digit returns and outdo tech.  Given the broad diversification most of our portfolios have, that would lead to a very good year for our clients.

Several clients have asked about investing in commodities such as gold or silver following the recent spike in prices. While commodities can experience periods of strong performance, our experience suggests that the U.S. stock market -when invested in thoughtfully and with proper diversification - offers the most reliable opportunity for long-term wealth creation. Commodities tend to be inherently cyclical, often characterized by “boom or bust” dynamics, which can make them less suitable as core, long-term portfolio holdings.

Have a healthy and prosperous 2026!  Please call with any questions or concerns.

Tim Rigby