Housing and Rates: A Mixed Picture
The Federal Reserve’s three quarter‑point rate cuts marked a clear shift in 2025, moving from a “higher for longer” stance toward a more gradual easing path. Treasury yields drifted lower through the year, with the 10‑year rate spending most of its time between 4% and 5% before finishing near the low‑4% range. This helped high‑quality bonds deliver positive total returns after a difficult period for fixed income.
Even with mortgage rates declining from 6.91% to 6.15%, the improvement did little to unfreeze the housing market. Home prices edged higher, reinforcing that elevated borrowing costs can slow activity without necessarily creating affordability. For many households, navigating today’s rate environment remains challenging, making timing and financing strategy particularly important.
Geopolitics and Policy: A Year of Steady Tension
Policy actions and global developments formed a persistent backdrop throughout 2025. Higher tariffs and rapid advances in technology investment influenced parts of the U.S. economy, channeling more capital into automation, AI, and domestic production. Meanwhile, geopolitical tensions did not culminate in a single major flashpoint but instead created a steady level of uncertainty. Ongoing conflicts, supply‑chain vulnerabilities, and evolving conversations around cyber risks contributed to elevated risk premiums across markets. Preparing portfolios to handle multiple possible scenarios continued to be an important focus.
What Drove U.S. Markets
Major equity indices posted another year of strong gains, supported largely by technology and AI‑linked companies. These names helped propel the Nasdaq 100 to another year of outperformance and lifted major benchmarks to or near record levels. The S&P 500 rose 16.39%, the Nasdaq 100 gained 20.17%, and the Dow added 12.97%. Much of this advance stemmed from companies generating higher earnings rather than investors simply paying richer valuations.
Performance varied by sector, making selectivity an ongoing theme. International equities also showed strength, with the MSCI All Country World ex‑USA index up 32.4% for the year.
Key Themes Shaping the Year
The U.S. economy expanded at a solid 2% pace in 2025, with AI‑driven activity accounting for a meaningful share of growth. Large technology companies continued to benefit from this trend, while manufacturing faced more difficulty and wage growth softened. Inflation moved closer to the Federal Reserve’s preferred range, though the final part of the year was uneven as housing costs and tariff effects added complications.
The Fed’s three rate cuts signaled a move away from its tightest policy stance, though officials indicated future adjustments would be measured. Markets also contended with tariff announcements, shutdown concerns, policy debates, and geopolitical developments. Once again, a small group of large technology names played an outsized role in market returns.
As We Begin 2026
The resilience of the past year highlighted that markets can make progress even when the news cycle feels uncertain. Although political developments and a softer labor market influenced sentiment at times, moderating inflation and continued earnings growth created a supportive foundation.
Looking to 2026, both optimism and caution remain appropriate. Higher tariffs, a shifting AI investment cycle, and ongoing fiscal dynamics point to the value of disciplined portfolio construction. Broad diversification, strong balance sheets, reliable cash flows, and thoughtful valuation awareness remain important considerations.
For guidance tailored to your goals and circumstances, we encourage you to connect with our financial team. We’re here to support you as the new year unfolds.
