2025 Q4 Market Commentary

Market Trends: Looking Back at 2025 and Ahead to 2026

For the past few years, I have used the first commentary of the new year to look back at our anticipated top stories from the prior year and to look ahead to potential themes of the coming year.

First, here are the stories we anticipated would impact investment markets and the economy in 2025, along with how those expectations actually played out:

1. Continuation of a Bull Market – The current bull market in stocks, specifically domestic stocks, is now over two years old. How can this continue? Simplistically, either companies’ earnings continue to grow and/or investors must be willing to pay more for each dollar earned (a greater P/E ratio). With the P/E ratios at historic highs, the stock market could be relying on the growth of earnings.
   • The show goes on! All major indices finished higher in 2025. The S&P 500 returned approximately 16%, the Dow rose almost 15%, and the Nasdaq gained close to 20%. International stocks performed nicely as well, growing by almost 32%.^[1]
2. Trump’s Second Term– This could easily fill the rest of the page, but I will try to keep things short. How serious is Trump on tariffs? How much influence and success will the Department of Government Efficiency (DOGE) have? If “successful,” as determined by DOGE’s own metrics, how will that impact the economy and both the stock and bond markets? What will Trump’s foreign policy look like? Are his comments on acquiring Greenland to be taken at face value.
   • This remains an evolving story. To date, DOGE is not overly successful (yet), with no major changes in government spending. Tariff announcements in April led to a major selloff that reversed quickly when Trump delayed many of the announced tariffs, which still have yet to be settled. As for Greenland? More on that later…
3. Market Volatility – or Lack Thereof – 2024 was the least volatile year for the stock market as measured by the CBOE Volatility Index, or VIX, since 2019.^[2] The biggest drawdown during the year was 7.5%, versus an average of 13%.^[3] It would not be surprising to see more volatility as the stock market reacts to changes by the new administration. As we have said in the past, volatility creates opportunity.
   • 2025 did see a return of volatility as the April selloff had markets down over 15%, only to recover by over 16% for the year.^[4] Indeed, volatility created an opportunity for those who remained or further invested in the market.
4. Concentration of the S&P – The top ten stocks by weight in the S&P now stand at 36.9%. The next 493 (yes, there are more than 500 stocks in the S&P 500) make up 63.1%. For context, in the year 2000, the top ten made up… 23.3%.^[5] When I see this drastic variation, the old saying “Big trees fall hard” comes to mind. If these stocks reverse, will it spark a greater sell-off?
   • Not yet. The top 10 stocks in the S&P now make up 39.4% of the index and were up, on average, over 25% in 2025.
5. Inflation, the Federal Reserve (Fed) and Interest Rates – Like theme number two above, this could likely take up more than one bullet point, but if Trump only gets one, so does this. How the markets, both stock and bond, fare in 2025 will likely be shaped by inflation. If inflation stays where it is or even goes down, the Fed might get cover for more interest rate cuts, which the markets would love. However, although not likely, a spike in inflation could cause the Fed to increase rates, which the markets would hate.
   • The Fed cut rates three times in 2025 as inflation has stayed pretty steady at around 2.7%.
6. Bonds – It is a little confusing as to what the bond market is trying to signal. While the Fed can only control short-term interest rates, longer terms usually trend lower when the Fed cuts rates. In turn, the prices of existing bonds increase. However, since the Fed started cutting rates in September, longer-term rates have increased, sending bond prices down. It appears that the bond market is signaling they do not believe interest rates are sustainable as they stand.
   • Bonds did well. The Barclays Agg (the S&P of the bond market) was up a little over 7% in 2025 as the 10-year treasury decreased from 4.57% to 4.18%.^[6]
7. Artificial Intelligence (AI) – Will the hoopla over AI subside in 2025? Unlikely, as most large companies will see it as a way to increase efficiency and boost their bottom line. That does not mean, however, every company that name-drops AI in their conference call will continue to see their stock price increase.
   • The hoopla has not died down but has moved past just Nvidia. Out of the top ten best-performing stocks of 2025, seven of them were AI-related, with an average return of around 189%.
8. Good News is Bad News – If I had to pick one phenomenon I hate to see in the stock market, this would be it. For example, if a good jobs report is released, showing millions of jobs have been added, the market could have a huge sell-off. It’s frustrating to witness, but there is logic behind it. Good news in the economy means the Fed is less likely to cut rates, and we have already discussed how the markets tend to react to that.
   • This was not as prevalent in 2025. The market sold off with the initial tariff news but basically went up for the remainder of the year as economic data was mostly positive.
9. International Issues – Copy and paste, every year. Russia/Ukraine, Middle East, China. While it is unlikely we will see closure on any of these global conflicts, de-escalation would be nice. For once, there might be some good news. An Israel-Hamas cease-fire in Gaza, involving a prisoner exchange and a release of hostages, took effect on January 19, 2025. Will it hold?
   • Surprisingly, this did not seem to play a major role in markets. The Russia/Ukraine situation has at times appeared to have a path to a conclusion, but one has not yet been reached. There was no major fighting in the Middle East during the year.
10. Will Any of My Teams Ever Win Again? – Back in 2021, I was flying high. The Atlanta Braves were World Champs, and the Georgia Bulldogs were about to win their first of two National Titles in college football. Since then, it has not been an easy road. Two straight years of no championships. Let’s hope it all changes in 2025 – here’s looking at you, Georgia Basketball.
    • Georgia Basketball is my only hope (and not a good one) after the Braves and Bulldogs failed to deliver.

On to 2026, what do we see as the major themes affecting markets?

1. Can it Keep Going? – Just like #1 last year. Can the bull market continue? Most analysts are predicting the markets to continue their rise in 2026, generating returns of around 9%.^[7] Much of this enthusiasm is tied to a GDP number that the Atlanta Fed thinks could hit 5.4% in 2026.^[8]
2. Signs of a Market Top – What are the signs of a market top? It can be many things, but a big one is a kind of euphoric feeling among investors. I had an experience recently that opened my eyes to this one being reached. I just spent a long weekend skiing with old friends, and they wanted to talk about my job, the markets, and their portfolios on the ski lifts, at dinner, whenever and wherever. We have done this trip for several years, and my job has rarely, if ever, come up. It may be nothing, but it is worth following.
3. Trump and His Ambitious Agenda – Speaking/writing about politics is not something I enjoy doing, but it is necessary in looking at the upcoming year. I am not giving an opinion about what I think should be done regarding Greenland, Iran, or tariffs, but it would be logical to conclude that much of it will be market moving. Without knowing what the administration will ultimately do, the most obvious conclusion is that it will increase volatility.
4. International Markets – For about 20 years, international stocks mostly trailed their U.S. counterparts. Can this continue in 2026? There is data that would point to that being a possibility. The current forward-looking Price to Earnings ratio (P/E) of the S&P 500 is 23.85, whereas international stocks are around 15.48. While it could be argued that U.S.-domiciled stocks deserve a premium, a difference of around 50% seems high.
5. The Federal Reserve – Here is another one that seems to make it on the list every year. Big questions for the Fed in 2026. Who will be the next chair? Will they look for lower rates, or do they want to see inflation get all the way to 2% before another move? Also, President Trump seems to talk more openly about his views on the Fed’s decisions more than past presidents. If this continues, investors could have less of an appetite for U.S. debt, which would increase interest rates.
6. Small Cap Stocks – From January 1, 2016 through the end of 2025, the S&P 500 delivered an annualized return of 14.82%, while U.S. small-cap stocks returned 9.62% on an annualized basis.^[9] If interest rates continue to decline, this trend could reverse, with small-cap stocks potentially outperforming. Such a shift could be healthy for the market, as large-cap stocks currently appear expensive.
7. Rare Earth Elements – There are 17 elements that are considered rare but vital because they are crucial for high-tech industries, known for their unique magnetic, catalytic, and optical properties, making them vital for electronics, EVs, and defense. It is believed that as much as 98% of these elements are in China, which becomes a factor in all negotiations with China.
8. AI Disruption – Sometimes it feels like all I hear about is AI. What is it?, What can it do? What can it not do? It is not hard to find an article that outlines the jobs AI will put out of business. Will we start to see those en masse in 2026? Will companies see this reflected in their earnings and therefore their stock prices? Or will AI taking jobs tilt the economy into a recession?
9. Black Swan – A Black Swan event is a rare, highly impactful, and unpredictable occurrence that seems obvious and explainable only in hindsight, a concept popularized by Nassim Nicholas Taleb. Examples include the 9/11 attacks or the 2008 financial crisis, characterized by their extreme rarity, massive consequences, and retrospective rationalization, even though they were unforeseen. This could be something totally out of the blue or something being discussed currently, but it is generally thought to have a low probability of happening. This could be something such as U.S. troops taking over Greenland or a full revisit of the trade war of last April.
10. Let’s Party – There are a lot of people taking sides in this country, but this summer, we should all remember we are Americans, and there is much to celebrate. Our country will be turning 250 this year, and events are planned across the country. Also, the World Cup is coming to our home soil this summer. While not much of a soccer fan myself, this is a huge, global event, and I will be tuned in and pulling for the USA.

As I wrote earlier, I recently went on a weekend ski trip with old friends, and I am writing this on the flight home after a great weekend. This is after a holiday with lots of fun and quality family time. I hope many of you are coming off quality time with family and friends. Don’t let the ups and downs of the market and the constant back and forth from Washington distract you from what is important. We will continue to follow these themes and any others that develop throughout the year and assess the impact on the economy and the markets.

The views and opinions expressed are of Persium Advisors, LLC. This commentary is provided for educational purposes only and should not be construed as investment advice. Persium Advisors is an investment advisor firm located in Atlanta, GA.

[1] Based on MSCI EAFE

[2] A real time index represents the market’s expectations for the relative strength of near-term price changes of the S&P 500 Index.

[3] https://www.bloomberg.com/news/articles/2024-11-26/stock-volatility-in-2024-hasn-t-been-this-low-in-five-years?embedded-checkout=true; https://www.calamos.com/insights/volatility-opportunity-guide/significant-intra-year-drawdowns-are-common/

[4] Based on S&P 500

[5] https://www.slickcharts.com/sp500, https://www.visualcapitalist.com/how-the-top-sp-500-companies-have-changed-over-time/

[6] https://fred.stlouisfed.org/series/DGS10

[7] https://finance.yahoo.com/news/wall-street-analysts-predict-9-114500864.html

[8] https://finance.yahoo.com/news/why-2026-see-unprecedented-u-154500420.html

[9] https://curvo.eu/backtest/en/compare-indexes/russell-2000-vs-sp-500?currency=usd

[i] https://www.morningstar.com/etfs/arcx/spy/performance

[ii] https://www.morningstar.com/etfs/arcx/spy/performance

[iii] https://www.nasdaq.com/articles/gold-price-update-q3-2025-review

[iv] https://ca.finance.yahoo.com/quote/BTC-USD/history/?period1=1735689600&period2=1761060845

[v] https://www.morningstar.com/etfs/arcx/agg/performance

[vi] https://www.investing.com/indices/us-spx-500-historical-data

[vii] https://www.bea.gov/data/gdp/gross-domestic-product

[viii] https://www.cnbc.com/2025/09/09/jobs-report-revisions-september-2025-.html