2025 Market Recap & 2026 Market Outlook

As we are already into 2026, we want to take a step back and reflect on a strong 2025 for diversified investors and share how we are thinking about the path ahead. While markets ended the year with a quieter tone in December, the bigger story of 2025 was continued momentum in risk assets alongside a more supportive rate environment.

U.S. equities posted solid gains for the year. The S&P 500 rose 17.88% in 2025 (2.66% in Q4), the Dow gained 14.92% (4.03% in Q4), and the Nasdaq advanced 21.14% (2.72% in Q4). International markets were a standout as well. Developed international stocks (MSCI EAFE) gained 31.22% for the year and emerging markets gained 34.36%, helped by a softer U.S. dollar and improving sentiment overseas.

Fixed income also contributed meaningfully in 2025. The Bloomberg U.S. Aggregate Bond Index gained 7.30% for the year, and high yield also produced strong results. Part of that support came from interest rates moving lower, with the 10-year Treasury yield falling from 4.57% to 4.17% over the year. The Federal Reserve also cut rates three times late in 2025 as more attention shifted toward maintaining labor market stability.

On the economic side, growth held up at times. Third-quarter GDP was reported at 4.3% annualized, with consumers continuing to spend. At the same time, hiring trends softened in the second half of the year, which is worth monitoring because job growth and wage trends are still the backbone of consumer demand.

During Q4, markets digested a typical mix of headlines and sentiment swings. November was a good example: a pullback early in the month was followed by a recovery as investors refocused on fundamentals and the direction of rates.

At IEM, our approach remains consistent. We focus on long-term diversification, we rebalance when portfolios move meaningfully away from targets, and we avoid making short-term changes based on the news cycle. After a strong year, that discipline matters even more because the temptation to chase what worked most recently tends to rise.

2026 Market Outlook

Looking ahead, the overall tone for 2026 is constructive, but we expect a more uneven ride at times. Markets can continue to be supported by earnings and a gradually easing policy backdrop, but the next year will likely be shaped by a few key variables. We will be watching the labor market closely to see whether cooling remains orderly or becomes more pronounced.

We will also be monitoring inflation progress, specifically whether inflation continues to trend lower or stalls. And finally, we will be focused on the Federal Reserve’s path and how quickly policy moves toward a more neutral stance, along with how markets digest that transition. In addition, we remain mindful that policy, political, and geopolitical developments can create periods of volatility, even when the broader economic backdrop is stable.

The practical takeaway is straightforward: we still believe diversification will be rewarded. Returns may be driven more by earnings growth and income than by investors paying higher and higher multiples for the same cash flows. That means staying invested, keeping portfolios aligned with long-term targets, and using volatility as a reason to rebalance rather than react.

As always, if you have questions about how these developments affect your plan or portfolio, we are here to help.

Please don't hesitate to contact us via phone at (952) 854-5544, email iem@integratedequity.net, or by replying to this email