2025 in Review and 2026 Ahead

Despite plenty of headlines and uncertainty, 2025 was the third year in a row with double-digit gains for US stocks.  We also saw the benefit of international diversification play out in a big way with international returns outperforming the US significantly in 2025.  

Bonds also had a strong year, fueled by the Federal Reserve lowing interest rates three times in the second half of the year. As a reminder, the price of existing bonds moves inverse to interest rate changes.  

Let’s not forget some of the challenges faced along the way in 2025 – a global tariff announcement in April that sent stocks sharply down and a 43-day government shutdown in October and November that created uncertainty.  

 As we enter 2026, I’m reminded that nobody has the crystal ball to the markets, even experts. There are frequently large gaps between forecasted returns and actual returns – the most accurate forecaster in recent years was still wrong by an average of 18.6% with most forecasters averaging an error rate close to 20% (Source: DFA).  

Markets seem cautiously optimistic about 2026. Inflation continues to be a theme with a potential for increased or sustained inflation due to tariffs, interest rate decreases, and the impact of the OBBBA tax legislation. Time will tell the story on the artificial intelligence hype that has driven tech growth and valuations. On a positive note, earnings increases have the potential to reduce some of the high price to earnings (P/E) ratios we have seen in 2025 – this is a healthy way for the market to continue to grow.  

What we do know about 2026 is that we remain committed to our strategy that focuses on diversifying within the US and internationally. While the short term can be rocky, we remain long term optimists.