Looking Back at 2025, and Ahead to 2026
2025 was a rewarding year for investors. U.S. stocks posted strong gains, with the S&P 500 up 17.9% and the Dow Jones Industrial Average rising roughly 13%. Bonds also had a comeback year, with the Bloomberg U.S. Aggregate Bond Index returning 7.2% as interest rates moved lower. But the real standout was overseas: international markets (MSCI ACWI ex‑U.S.) surged 32.6%.
Why did international markets outperform? Several factors came together: improving global trade, fiscal stimulus in Europe, and strong investment in technology and artificial intelligence outside the U.S. Many international markets also started the year with more attractive valuations compared to U.S. stocks, giving them room to run as economic conditions improved.
The “Magnificent 7” Still Lead, but Breadth Is Improving
The largest U.S. tech names, the so-called “Magnificent 7” (Google, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla), continued to drive much of the domestic market’s performance. However, we’re seeing encouraging signs of broader participation from other sectors and smaller companies. This is healthy for the market because it means growth isn’t concentrated in just a handful of stocks.
What’s Next for 2026?
Earnings should remain the key driver supported by ongoing AI data‑center buildouts, capital expenditure plans, and policy support. If those profits are delivered, we believe stock gains can broaden beyond mega‑cap technology leaders, continuing the improving breadth we started to see in 2025.
The economic backdrop and corporate earnings remain strong, which is good news. But stock valuations are high, and history tells us that periods like this often come with some bumps in the road. Volatility is normal (and even healthy) in market cycles. Rather than fearing it, we plan for it. Staying diversified across U.S. and international stocks, bonds, and different investment styles helps smooth out the ride and keep your long-term goals on track. Historically, the S&P 500 has experienced 10% corrections about once every 16 months or so, and bear markets (‑20% or worse) about once every six years, reminding us that pullbacks are part of the journey, not a signal to abandon long‑term plans.
While it’s fun to try to predict where the markets are going, it’s wise to heed the timeless wisdom of the great American philosopher Yogi Berra who once said, “it’s tough to make predictions, especially about the future.”
2025 was a clear illustration of why we diversify: U.S. stocks delivered strong returns, international stocks did even better, and core bonds helped steady portfolios. Looking to 2026, a diversified mix across U.S. and international equities, high‑quality bonds, and different investment styles remains the best way to pursue growth while managing risk. This approach helps us participate when leadership rotates (as it did in 2025) and stay resilient when volatility shows up.
Your Next Step
If you’d like to review your portfolio or explore how diversification can position you for success in 2026, let’s schedule a conversation. Email or give us a call – we’d love to help you start the year strong.
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