The year ended on a high note as stocks closed near all-time highs, while 10-year bonds rallied about 60 basis points from 4.80% to end at 4.17%. The imposition of massive global tariffs upended financial markets in April 2025, causing deleterious and cascading effects on the economies of U.S. trading partners. The tariff disruption also caused demonstrable political repercussions with major trading partners such as Canada, China, and the European Union.
The actual economic damage to date is far less than Wall Street feared in terms of inflation and economic slowdown. In fact, inflation has continued to moderate with CPI averaging +2.7% in 2025. Economic activity, as measured by GDP, bottomed at -0.6% last March and subsequently surged to +4.3% in September. This strength is likely to continue in 2026 as all manner of the means of industrial production are being onshored. American industrial policy has been radically changed by tariffs. The Federal Reserve cut interest rates by a total 0.75%, bringing their overnight target rate down to 3.75%. A more accommodative Fed Chair is likely to be named to replace Jerome Powell in May.
Peace in the Middle East has held but is tenuous. The destruction of Iranian nuclear sites was helpful to that end, but there are always unintended consequences in war. Iran is now experiencing an internal political uprising that could bring further conflict. South of the U.S. border, Operation Absolute Resolve led to the capture of Venezuela’s leader, Nicolas Maduro. Venezuela will need to rebuild their oil industry which should provide stability to the region and wealth to the Venezuelan people. Regime change is complicated and fraught. However, this time may be different as U.S. involvement provides stability to the region, disrupts the narcotics trade, and fences off China and Russia from exploiting Venezuela’s oil and precious metal resources.
The S&P 500 returned 17.9% in 2025 led heavily by AI-related optimism, spending and revenues. Developed international and emerging markets were up sharply last year, +32% and +34% respectively. Defense-related spending and cheaper valuations drove international markets as many investors looked to diversify away from frothy U.S. markets.
Precious metals continued to surge higher into the new year as gold surpassed $5,000 and silver $100 per ounce. Demand from global central banks bolstering their reserves, industrial demand, and nervous retail investors drove the blistering rally. Gold returned +65%, and silver a jaw-dropping +148%. The latest geopolitical flash point over Greenland seems to have fueled further safe-haven demand.
Wall Street’s consensus forecast suggests the year ahead should be more of the same: stocks continue to rally, interest rates drift down, and geopolitical flashpoints resolve themselves no matter how dire. This scenario has been the case for three consecutive years now and could be the outcome again in 2026. Our value-add is not market prognostications, but rather effectively helping clients navigate volatility and uncertainty to achieve their financial objectives. We are grateful to have met with most of you last year and to hear your thoughts from outside of the Wall Street bubble. Let us work together, in an uncertain world complicated by imperfect information, in order to achieve the best outcome for your portfolio within your desired envelope of market risk.