2025 Year-End Market Commentary

The Goldilocks Balancing Act

Global markets closed 2025 on a strong but increasingly balanced footing, with solid equity gains, improving bond performance, and broader leadership across regions and sectors. U.S. large caps delivered a strong year as the S&P 500 rose 17.9% including dividends, though Q4 marked a rotation away from mega-cap tech toward smaller-cap stocks, defensive growth, and higher-quality cyclicals. International equities outperformed the U.S., aided by firmer global growth and a weaker dollar, while bonds rallied as the Fed pivoted to rate cuts in the second half of the year. Within sectors, leadership shifted meaningfully, with Health Care and Communication Services leading gains, Technology cooling amid valuation-driven profit-taking, and Real Estate lagging under refinancing pressures and structural office challenges, all against a backdrop of resilient but moderating U.S. economic growth, easing inflation, and a gradually cooling labor market.

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