The economy’s foundation is sturdier than many expected, but the sources of strength differ from prior cycles. AI investment is real, yet the ultimate productivity payoff remains uncertain. Corporate earnings are strong, but expectations are elevated.
It is in booms that the seeds of busts are created, and the heroes of one era can be the villains of the next. – Floyd Norris
Geopolitical developments played a central role in shaping market performance and investor sentiment.
2025 delivered another strong year for diversified investors, but it was far from straightforward. Markets navigated sharp policy-driven drawdowns, shifting leadership, and an evolving macro backdrop, yet ultimately advanced on the strength of earnings growth, improving global participation, and supportive financial conditions
The economic picture is complicated: growth has held up surprisingly well, inflation remains above target, and political developments are adding uncertainty. Rather than highlighting a single storyline, we believe it is more helpful to step back and consider the full set of forces that shape the outlook.
Q2 brought a welcome mix of diminishing tariff tension, positive earnings surprises, resurgent AI enthusiasm, resilient consumer data, and a series of cooler-than-expected inflation prints
By the end of the quarter, the S&P had dipped into correction territory before recovering slightly, finishing just shy of 10% below its February peak.
Major indices posted notable gains, with the S&P 500 achieving its second consecutive year of 20%+ performance for the first time since 1998.
U.S. equity markets saw broad gains in Q3, with all major indices posting positive returns. Notably, market leadership, which had been concentrated in large-cap tech, broadened as other sectors and asset classes joined the fun.