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EXECUTIVE SUMMARY
– US stocks performed well in 2025, helped by large technology companies, though performance broadened modestly toward the end of the year.
– Foreign stocks outperformed US stocks significantly, helped by a declining dollar, corporate reforms and improved profitability in Japan as well as fiscal stimulus in Europe.
– Fixed income delivered a solid recovery after several challenging years, helped both by higher coupon income and declining interest rates as monetary policy gradually eased.
– The U.S. economy continued to expand in 2025, though at a slower pace than in prior years.
– The Federal Reserve cut its benchmark federal funds rate during the second half of the year.
– Political developments played a visible role in shaping market sentiment during 2025.
– Corporate earnings continued to be strong as companies navigated the uncertain and unstable environment.
– US stocks are more expensive than foreign stocks in absolute and relative terms.
– There are elements of investor behavior and market pricing currently that rhyme with previous bubbles but there are key differences that seem to suggest we are not yet in a bubble.
– Investors should continue to focus on diversification to create resilient portfolios.