Personally, 2025 was a good year, full of ups and downs. Some of the ups were that one of my kids graduated from high school, and the other got married and graduated from college. A negative was that my widowed mother fell and had significant injuries. So last year was good at the beginning, tough in the middle, and great at the end, much like the stock market in 2025.
Stocks had another strong year in 2025, enjoying their third straight year of double-digit returns. Last year’s performance was especially impressive considering the craziness of the last few weeks in April, when everyone was trying to digest the new US tariff policy. Tariffs weren’t the only stumbling block; market concentration in AI, high valuations, deficit spending, a long government shutdown, and inflation also worried investors.
Here are some takeaways from 2025:
- The stock market had plenty of skeptics at the beginning of 2025, just like in 2023 and 2024. While stocks have down years, on average, since 1980, the S&P 500 goes up about three times as often as it falls.
- Stocks often follow earnings. The companies that make up the S&P 500 grew earnings at a double-digit pace in 2025 and have the potential to do so again in 2026, which could push stocks higher.
- Big midyear market drops and strong annual returns can happen in the same year. The S&P 500 dropped 19% from its record high last April, then recovered and rose 16% above that high to end the year. Since 1980, the S&P 500 has averaged a positive 11% annual gain while also averaging a negative 14% at some point during those years. This reminds us that volatility is a normal part of the market cycle.
- Lower Federal Reserve (Fed) rates are good for both stocks and bonds. Not only did stocks do well, but the Bloomberg U.S. Aggregate Bond Index gained more than 7% in 2025, driven by lower interest rates as the Fed began lowering its target rate.
Looking ahead to 2026, stocks face some of the same challenges they did in 2025 but have some new opportunities.
- Tariffs are expected to play a minor role in the market.
- Midterm elections and the usual negative political ads that come with them could bring volatility later this year.
- Higher-than-normal tax returns, along with the potential of fiscal stimulus in the form of “tariff rebates,” are expected to be an economic boost to US markets.
- Though the Fed is expected to pause its rate cuts in its next meeting, it is still expected to lower rates two to three times this year, which typically benefits the stock market.
- Venezuela won’t move the needle in the shortterm. Although they have the largest oil deposits in the world, they were producing 1% of the world’s oil late last year. Venezuela’s pipelines and rigs are so dilapidated that it will take years and billions of dollars to get them up to speed. This could keep fuel prices low in the long term, though.
- The year for biotech. Though we’ve seen a big drop in the biotech stocks, leading to layoffs and company closures, things are starting to turn around. Wider access to weight-loss drugs in pill form could lead to a big year for these companies and benefit the healthcare sector as a whole.
It seems the analysts’ consensus is that the economy will hold up this year. We saw some AI jitters creep into the market toward the end of last year, and I think it’s worth watching. The big banks are predicting a good year for stocks in 2026. Bank of America sees the S&P 500 ending the year 3.7% higher than in 2025, while JP Morgan and Goldman Sachs expect even bigger gains. If the S&P 500 does rise this year, it would be the longest winning streak since 2007. Fingers crossed that it does.
Our year ended great; my youngest is loving college, I gained a great son-in-law, and my Mom is thriving. Our firm is doing better than we ever could have dreamed, and we look forward to moving into a larger office building. Like the market, it ended great, though we had some nervous times in the middle. As I get older, I am starting to realize that is how life and the markets go.
Have a blessed week!
Richard Baker
Opinions voiced above are for general information only & not intended as specific advice or recommendations for any person. All performance cited is historical & is no guarantee of future results. All indices are unmanaged and may not be invested directly.
All investing involves risk, including loss of principal. No strategy assures success or protects against loss.
The economic forecast outlined in this material may not develop as predicted & there can be no guarantee that strategies promoted will be successful.
All index data from FactSet.
Fervent Wealth Management is a financial management and services entity in Springfield, Missouri.