Markets and Events
The fourth quarter of 2025 was marked by the longest government shutdown in U.S. history, which finally ended after eight Democrats sided with Republicans. The resolution included a promise to hold a later vote on continuing ACA healthcare subsidies, though the outcome of that pledge remains unclear. The period also saw several consequential Supreme Court rulings and widespread controversy surrounding National Guard deployments in multiple U.S. cities. Internationally, the U.S. military intensified its pressure campaign against Venezuela, culminating in Nicolás Maduro’s extraction on January 3rd.
Russia’s war in Ukraine remained locked in a stalemate, with peace talks showing little progress. In the Middle East, the fragile U.S.-brokered ceasefire in Gaza has so far held.
On the markets front, the economy has held up reasonably well, though the government shutdown caused delays and gaps in key data releases, leaving uncertainty around near-term trends. The Federal Reserve cut interest rates twice more—in October and December—bringing total 2025 easing to 0.75%. How the Fed approaches rate policy in 2026 remains to be seen, especially with Chair Powell’s term expiring in May.
China further restricted exports of rare industrial metals, worsening trade tensions with the Trump administration. October also brought a brief credit scare tied to concerns over private credit quality after the First Brands bankruptcy and related defaults. While those fears have since faded, they could easily resurface in 2026.
Another heavily covered theme in late 2025 was the potential “AI bubble,” as major technology firms tied to data center expansion came under scrutiny. The New York Times in particular ran multiple features on the topic. Tech megacaps such as Meta, Nvidia, and Oracle saw significant selloffs following earnings reports dominated by AI narratives.
Asset Classes
Looking at the full year 2025, precious metals and foreign stocks outperformed the U.S. market(Exhibit 1). Gold was up 64% for the year, but that was not much compared to its peers with silver +145% and platinum +125% returns. These were multiyear/decade highs driven by central bank buying and industrial demand. Within equities, Nasdaq growth names outpaced the S&P 500, while small caps lagged yet again.
Bonds delivered solid 7–8% returns, while the U.S. dollar fell 5%, pressured by tariff-related distortions and a global reassessment of financial and diplomatic ties with Washington. Bitcoin declined 6% for the year, with a sharp 24% drop in Q4. Crude oil fell 8.5%, as persistent oversupply kept prices in check despite geopolitical tensions.
Sectors and Stocks
Among sectors, gold miners dominated with a staggering 155% rally, benefiting from strong metal prices (Exhibit 2). Steelmakers, semiconductors, and defense contractors also posted impressive results. Technology and industrials outperformed the broad index, while utilities, financials, and healthcare followed closely. At the bottom were homebuilders, real estate, energy, and consumer staples.
Drilling down into individual stocks (Exhibit 3), the left panel highlights the five best and worst contributors to total S&P 500 market capitalization in 2025. Four AI-driven technology firms and one GLP‑1 pharmaceutical name accounted for roughly 45% of the index’s annual gain. On the downside, a handful of smaller firms lost significant market value, though their limited weight translated to only about a 5% drag on the broader index.
On the right panel, which adjusts for company size, three data storage firms stood out with mid‑200% returns, reflecting surging AI infrastructure demand. Robinhood more than tripled as active trading—some might say gambling—returned to favor. Warner Brothers saw a massive rally amid a takeover bidding war. The weakest performers were a mix of company‑specific disappointments without a unifying theme.
International Markets
Foreign markets broadly outperformed in 2025, with more than 30 countries beating U.S. returns (Exhibit 4). South Korea led with a 95% gain, followed by Peru (+87%). Several European markets delivered returns in the 70% range. Resource‑rich regions, including South Africa and much of Latin America, also benefited from elevated commodity demand and expanded trade networks that increasingly bypassed the USA. Israel, Canada, and several Asian economies turned in strong results as well.
At the bottom of the rankings were Turkey, India, and Argentina, each contending with internal political and economic headwinds.
Economy and Rates
I will do a separate post in late January reviewing the 2025 economic data after a few more important data points get released.