The U.S. stock market’s story in 2025 was a mix of sharp fear and steady recovery, according to a year-end review of what drove prices up and down. Investors faced volatility tied to tariff threats, interest-rate expectations and concerns that artificial intelligence was becoming overvalued. Despite those shocks, index funds built around the S&P 500 ultimately finished the year higher, with the products reaching a record high on Dec. 24.
One of the main shocks came from trade policy. In April, President Donald Trump announced sweeping tariffs on “Liberation Day” that were more severe than investors expected, setting off worries about recession risk and spiking inflation. The S&P 500 fell nearly 5% on April 3 for its worst day since the COVID-era crash of 2020, and the index dropped another 6% on April 4 after China responded, raising fears of a tit-for-tat trade war.
The tariff pressure did not stay confined to stocks. The report said the value of the U.S. dollar fell, and that anxiety reached even the U.S. Treasury market, which is often viewed as the safest segment of bond trading. The upheaval eased after Trump put the tariffs on pause on April 9, after seeing the bond market get “queasy,” a move that sent relief through Wall Street. The markets then advanced through a relatively calm summer, helped by sentiment around artificial intelligence and by strong company profit reports.
The Federal Reserve’s actions also shaped 2025, both by moving rates and by becoming more politically entangled. The report said the Fed cut interest rates three times during the year, strengthening tailwinds for markets that benefit when borrowing costs fall. At the same time, it said Trump lobbied hard for rate cuts and attacked Federal Reserve Chair Jerome Powell, describing Powell as “Too Late” and criticizing a renovation cost dispute that Trump raised publicly in July, in front of cameras.
Even with widespread investor interest in lower rates, the personal attacks created “queasiness,” the report said, because they raised the possibility of less independence at the central bank. The story said Powell’s term as chair is set to expire in May and that expectations are broad that Trump will choose a replacement more likely to cut rates.
The year’s gains were not limited to the U.S. “America first” did not extend to global markets, the report said, and several foreign indexes posted stronger performance even as the U.S. rose. It cited South Korea’s KOSPI, which benefited from a technology surge tied to artificial intelligence investment and companies including Samsung and SK Hynix. It also pointed to Japan’s Nikkei 225, which it said gained for a third straight year, and to Europe, where the report said Germany’s DAX drew support as the government planned increased spending on infrastructure and defense and the European Central Bank cut rates in the first half of the year.
Crypto added another layer of whipsawing. The report said bitcoin fell early in the year along with other risk assets as Trump’s trade policies scared investors away from riskier holdings. It then described a rebound tied to the White House and Congress throwing support behind digital assets and to the Trump family launching crypto ventures, alongside retail demand for bitcoin exchange-traded funds. The report said Strategy Inc. made buying and holding crypto central to its business and that its stock jumped as a result.
Bitcoin’s roller-coaster continued after reaching a high of around $125,000 in early October. The report said digital assets then tanked as investors worried that gains in “shining stars” like tech stocks and crypto had risen too far, and it said that as of Wednesday afternoon bitcoin traded around $87,700—down roughly 30% from the peak and 6% below where it started the year.
Looking ahead to 2026, many professional investors in the report said they expect more gains, supported by an economy they think will “plod ahead” without a recession. That would allow U.S. companies to keep growing profits, the report said, and it cited FactSet expectations for S&P 500 earnings per share to rise 14.5% in 2026 after an estimated 12.1% growth rate for 2025. But the report also noted lingering concerns that AI investment may not produce enough profits and productivity to justify valuations, adding that such doubts could keep pressure on AI stocks including Nvidia and Broadcom.
The report also highlighted valuation worries that extend beyond AI names. It said strategists at Vanguard estimated U.S. stocks may return only about 3.5% to 5.5% in annualized returns over the next 10 years, and that only twice in the last decade had the S&P 500 failed to meet that range. It further cited Bank of America strategist Savita Subramanian, who said the S&P 500 could rise by less than half as much as profits do in 2026—potentially due to companies reducing stock buybacks and central banks implementing fewer rate cuts.