The year 2025 was marked by both turbulence and perseverance, shaped by the disruptive impact of trade tariffs and the constant buzz surrounding artificial intelligence. Despite these headwinds, the financial markets successfully worked through a complex environment and finished 2025 with double-digit returns for the third consecutive year. Those results were not achieved without difficulty. The year opened on a hopeful note, but a sharp market pullback in April put investor confidence to the test. Momentum returned by midyear, and by year-end the S&P 500 Index had risen nearly 18%. The Dow Jones Industrial Average, composed of leading blue-chip companies, rose +15% during the year, while the technology-focused Nasdaq Composite gained more than +21%. Mid- and small-capitalization equities trailed the broader market modestly but still delivered solid performance, with the Russell Midcap Index returning +10.6% and the Russell 2000 Index advancing +12.8%. Growth stocks outperformed for much of the year, driven by continued enthusiasm for innovation, particularly in areas such as artificial intelligence, cloud computing, and advanced technologies. Value stocks benefited from periods of market pullbacks, providing diversification and downside resilience during periods of uncertainty when investors sought stability and attractive valuations, but posted more modest results for the year.
All segments of the domestic economy finished the year in positive territory, though performance gaps began to emerge across sectors. Communication services significantly outperformed the broader market, with year-to-date gains nearly doubling the overall return, driven by strength in streaming platforms and digital advertising. The technology sector maintained its leadership, continuing to benefit from sustained momentum around artificial intelligence. In contrast, consumer discretionary lagged, pressured by elevated interest rates and more restrained consumer spending on higher-priced purchases. 1
The global markets also experienced an exceptional year in 2025, as developed international equities posted their best results in several years. The MSCI EAFE Index benefited from stronger-than-anticipated corporate earnings, along with a softer U.S. dollar, which provided an additional tailwind for returns. 2
The bond market posted its strongest annual performance since 2020, with the U.S. Aggregate Bond Index returning +7.3% for the year. This strength was supported by easing inflation, improving economic growth expectations, and a favorable fiscal policy outlook. The 10-year U.S. Treasury yield ended the year at 4.18% on December 31, 2025, down modestly from 4.57% on the first business day of the year. 3
These stellar results were supported by the unexpected resilience of the U.S. economy. Overall, real GDP expanded at an estimated 2.0–2.5% pace for the year, highlighted by a particularly strong third quarter that delivered annualized growth of about 4.3%. The second and fourth quarters were the strongest consecutive quarters of growth since 2021, before the Federal Reserve began its aggressive rate hiking cycle. 4
The labor market dynamics deteriorated modestly over the year, with the unemployment rate increasing to 4.6% by November, roughly 50 basis points above its level at the start of the year. This uptick coincided with a sustained slowdown in net job creation, suggesting a gradual weakening in labor demand rather than a cyclical shock. 5
Inflation pressures remained generally contained toward the end of 2025. According to data from the Bureau of Labor Statistics, the Consumer Price Index increased +2.7% in December, indicating that the inflationary effects of tariffs were more limited than anticipated earlier in the year. While price growth was volatile and persisted above the Federal Reserve’s 2% objective, year-over-year inflation moderated over the course of 2025, easing to 2.7% by the end of the year from approximately 3% in January. 6
As it was widely anticipated, the Federal Reserve cut interest rates by twenty-five basis points at its September meeting, setting the new target range for the federal funds rate at 4.00%–4.25%. Chair Jerome Powell characterized the move as a “risk management cut” intended to support a cooling labor market while continuing to address inflation that remains slightly above the Fed’s 2% goal.11 In its updated Summary of Economic Projections, the Fed signaled the likelihood of two additional rate cuts before year-end, marking a potential turning point in monetary policy.12 After more than a year of balancing concerns over stubborn inflation and the risk of over-tightening, recent signs of labor market softening have shifted the focus toward the Fed’s employment mandate, suggesting a move toward a more neutral policy stance.
As we move into the final quarter of 2025, the outlook reflects a cautious but optimistic balance between risks and opportunities. On the positive side, earnings growth, continued investment in artificial intelligence, and the potential for additional Federal Reserve rate cuts provide solid support for equities, an asset class that has historically performed well during periods of monetary easing. However, elevated valuations, signs of a softening labor market, and ongoing tariff concerns remain notable headwinds. So far, though, the impact of tariffs on overall prices has been relatively limited.
Another area of concern involves the duration of the ongoing government shutdown. This uncertainty affects not only federal workers, but also Social Security beneficiaries, travelers, and the broader public. However, historical trends provide some reassurance. Data from Nasdaq Economic Research show that equity markets have generally remained resilient during previous shutdowns. In fact, during each of the last five shutdowns since the mid-1990s, the market posted gains, including a 9% increase during the record-long 2018–2019 closure. While the current situation carries higher stakes and could spark short-term volatility, such periods can also open selective buying opportunities. As always, we remain focused on prudent portfolio management, seeking to balance potential opportunities with careful risk oversight on your behalf.
As always, we appreciate your continued trust and look forward to supporting you in the year ahead.
Dumont & Blake Investment Advisors, LLC
December 31, 2025
1 Bloomberg, spglobal.com
2 MSCI, MSCI.com
3 Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/DGS10
4 Bureau of Economic Analysis, https://www.bea.gov/data/gdp/gross-domestic-product
5 Bureau of Labor Statistics, https://www.bls.gov/news.release/empsit.nr0.htm
6 Bureau of Labor Statistics, https://www.bls.gov/cpi/
7 Survey of Consumers, University of Michigan, https://www.sca.isr.umich.edu/tables.html
8 Federal Reserve System, https://www.federalreserve.gov/newsevents/pressreleases.htm
This commentary is for informational and educational purposes only and includes general economic and market conditions. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Data and other market and economic information referenced is from sources believed to be reliable and opinions are subject to change. All investments involve risks, including the loss of principal.