- 2025 was another productive year for investment assets despite intermittent volatility, marking a third straight year of double-digit U.S. equity gains. Fixed income also played a key role in supporting diversified portfolio returns.
- After years of underperformance, international equities stood out in 2025, with developed and emerging markets up over 30% in USD terms. A weaker dollar helped, but local market strength was equally impressive.
- Artificial intelligence dominated 2025, attracting massive attention and capital. Progress is rapid, but implications for work and life are unfolding in real time. Bubble concerns persist, though excesses remain concentrated rather than widespread.
- Gold and other precious metals had a breakout year, posting gains that outshined cryptocurrencies. While unresolved sovereign debt issues support ownership, these assets lack clear valuation drivers, making long-term strategic positions questionable.
- For bond investors, yields outside the long end have fallen as central bank actions ease inflation fears. Lower rates and tight spreads have normalized opportunities in high-quality fixed income, though pockets of value, such as municipals, persist.
- Private market results were also compelling in 2025, although at times lagged public market equivalents given their tendency to over- or underreact. Given aforementioned dynamics in public markets, the rationale for a strategic allocation to private markets remains alive and well.
- Domestically, the economy has taken on a K-shaped form: higher-income households benefit from rising incomes and asset prices, while lower-income cohorts face stagnation and declining real purchasing power.
- This two-speed dynamic helps to explain the disconnect between headline data and consumer sentiment, which is near historic lows despite GDP growth, inflation, and employment remaining supportive.
- 2025 brought no shortage of domestic policy volatility from tariffs to a government shutdown. Both tested the resiliency of the U.S. economy and contributed to investment asset value turbulence, but were unable to fully derail an otherwise resilient economy.
- The Fed delivered several policy rate adjustments (three 0.25% cuts in 2025), bringing the policy rate closer to a neutral level of 3.50-3.75%. Boundaries around the central bank’s political independence continue to be called into question as Fed Chair Powell faces potential criminal prosecution over renovation costs of its headquarters.
- Geopolitical instability is rising and likely to stay elevated, most recently highlighted by Venezuelan President Maduro’s capture. Exogenous shocks in 2026 could trigger sharp market swings, reinforcing the case for broad diversification.
- With 2025 now closed, focus shifts to the road ahead where risks skew higher. U.S. equities trade at elevated valuations and near-record concentration levels after several strong years. International valuations have also risen but remain more reasonable, supporting global exposure.
- Despite pockets of heightened volatility, several years of sustained, supportive investment asset returns potentially paves a rockier path for the future. While the opportunity set skews in favor of caution, predicting the timing and path of future market performance is often a fool’s errand suggesting proper liquidity management paired with an appropriate strategic asset allocation is the best predictor of future successful outcomes.
