By: Paul Morrone
There is no such thing as a ‘normal’ period of time when you’re talking about financial markets. Even periods of low volatility are marked as unusual because they are just that, unusual (even though we all love them because that usually means uncharacteristically high returns). The fourth quarter of 2025, however, brought more questions than answers and investors often found themselves behind the eight ball as headlines rolled across the top fold of the newspaper. But that doesn’t mean it was a bad quarter – depending upon which assets you owned.
Everyone loves to talk about stocks, so we’ll start there. It was a great year for stocks, broadly speaking, and many major indices measuring US and foreign equities posted double-digit gains to close out the year, as follows:
- S&P500 – up about 2% for the quarter and about 16.4% for the year ended 12/31/25.
- MSCI EM – just over 4% for the quarter and just over 34% for the year ended 12/31/25.
- MSCI EAFE – just over 4% and just under 32% for the year ended 12/31/25.
Thinking back to April of 2025 during the Liberation Day meltdown, you would be hard pressed to convince anyone that global equity markets would have rebounded to post double digit gains by the end of the year, and would be called crazy to have said international equities would have been up over 30%. But here we are, and 2025 is now officially in the books.
But these numbers don’t tell the whole story. Where the performance is coming from is just as interesting as the headline numbers themselves. Tech and AI were certainly the themes for 2024 and 2025, but the fourth quarter showed some cracks in the surface. Investors are now beginning to question whether the insatiable demand for all things AI can continue to justify the sky-high valuation of tech company shares and whether the AI solutions being implemented in virtually every industry are going to yield the productivity gains and margin increases that we’ve been hoping for. In fact, many of the major tech names posted negative returns during the fourth quarter of the year, even with the broader S&P500 index remaining positive. Even more striking is that only two of the ‘Magnificent 7’ stocks (Google, Nivida) outperformed the S&P500 during the year, with the other five (Amazon, Apple, Meta, Microsoft and Tesla – which lost over 7% in value during the last 4 trading days of the year) underperforming the S&P500’s 2025 performance.
This is good news for the ‘broadening’ of the stock rally that we have been talking about over the past few years, however, it also indicates that investors are becoming increasingly skeptical about the prices they are willing to pay to own some of the largest companies in the world. Because of the outsized weight that the tech and communications sectors have on many indices, it could put pressure on broad index performance if these sectors materially underperform in the future.
Speaking of having a tough quarter, investors in crypto currencies were thrown into a tailspin as prices of the most commonly followed digital currencies tumbled 30% or more in a matter of weeks from mid-October until Thanksgiving. They continue to gyrate and have yet to recover meaningful ground as of the time of this writing. While this is not what many would consider to be a core asset class, it is interesting to see how cryptocurrencies trade relative to other assets and how we often view these as another gauge of liquidity in financial markets. What’s to come in 2026 is anyone’s guess, but the dramatic fourth quarter and negative year-over-year performance of Cryptocurrency has certainly raised some eyebrows. This comes even despite the fact that these assets enjoyed tailwinds from decreased regulation and broader public acceptance as many platforms expanded trading of exchange traded products linked to various cryptocurrencies in 2025.
Then there was the government shutdown, which had a real impact on millions of Americans who lived for 30+ days with no pay, and resulted in lost economic output measured in the tens of billions. The impact on the investing community was more muted, however, it left investors (and even our Federal reserve) flying blind as data from the Bureau of Labor Statistics was delayed, or even scrapped entirely, due to the department being shut down for such an extended period of time.
This created questions about how the fed would act in their December meeting, and what the tone would be when Jay Powell set the stage for 2026 in his public address. By stating that future interest rate cuts were ‘not guaranteed’ his words left investors with less guidance than in the past about how the fed would proceed and markedly changed expectations for how many future rate cuts were priced in for the upcoming year. The Fed and its voting members made clear that they would be watching the labor markets (which have shown signs of softening over the past 6 months) and inflation (which cooled more than expected in the November Consumer Price Index report) and react accordingly to deliver on their promise to the American people to maintain price stability and full employment in the economy.
So, what does the crystal ball behold for 2026? Of course we’re working with educated guesses at best, and a shot from the hip at the worst. But many analysts are predicting a positive year for the S&P500, for whatever that is worth. As we learned during 2025, one headline, political gridlock, unforeseen economic bombshell or presidential stroke of the pen can send markets reeling in a way we could not have possibly predicted.
Perspective is key when looking forward, and as much as we as humans like to digest data in universally understood windows of time (calendar years, quarters, months, etc.), it doesn’t tell the whole story. This past year was a prime example that saw a meltdown of 20% or more in US stocks in April, only to be offset by quick gains to post a strong year-over-year number. The activity between the point-to-point measurements is what investors see in their portfolios and may not always portray an accurate picture of the wild ride we sometimes experience during a given window of time. We’ve said many times that markets don’t go up in a straight line, but with the right plan in place and the right mentality about long-term investing, it can be easier to see the forest through the trees and be less fearful about the unknown.
Wishing you a happy, healthy and prosperous 2026!
The opinions voiced in this presentation are for general information only and are not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing. Investing involves risks including possible loss of principal. . No investment strategy or risk management technique can guarantee return or eliminate risk. Any economic forecasts set forth may not develop as predicted and are subject to change. All indices are unmanaged and may not be invested into directly. Past performance is no guarantee of future results.
Investing in stock includes numerous specific risks including: the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.
Because of their narrow focus, sector investing will be subject to greater volatility than investing more broadly across many sectors and companies.
Consumer Price Index (CPI): Measures the monthly change in prices paid by U.S. consumers. The U.S. Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending.
International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. These risks are often heightened for investments in emerging markets.
The MSCI EAFE Index is an equity index which captures large and mid cap representation across 21 Developed Markets countries around the world, excluding the US and Canada.
The MSCI Emerging Markets Index captures large and mid cap representation across 24 Emerging Markets (EM) countries
The S&P 500 is an unmanaged index of 500 companies used to measure large-cap U.S. stock market performance.
Cryptocurrency and cryptocurrency-related products can be volatile, are highly speculative and involve significant risks including: liquidity, pricing, regulatory, cybersecurity risk, and loss of principal. A cryptocurrency fund may trade at a significant premium to Net Asset Value (NAV). Cryptocurrencies are not legal tender and are not government backed. Cryptocurrencies are non-traditional investments, resulting in a different tax treatment than currency. Federal, state or foreign governments may restrict the use and exchange of cryptocurrency. The use and exchange of cryptocurrency may also be restricted or halted permanently as regulatory developments continue, and regulations are subject to change at any time. Cryptocurrency exchanges may stop operating or permanently shut down due to fraud, technical glitches, hackers, malware, or bankruptcy. .
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