THE YEAR IN NUMBERS

If 2023 was the year of surprise and 2024 was the year of AI, 2025 was the year the bull market finally grew up. The S&P 500 (GSPC) closed the books on December 31st with a total return of +17.9%, securing its third consecutive year of double-digit gains. This wasn't just a tech story; the Dow Jones Industrial Average (DJI) added +14.9%, while the Russell 2000 (RUT) finally joined the party with a +12.8% advance.

Equity Indices
  • Nasdaq Composite: +21.1%
  • S&P 500: +17.9%
  • Russell 2000: +12.8%
Assets & Volatility
  • Gold: +60.0%
  • WTI Crude: -20.0%
  • VIX: 14.95

The standout statistic of the year, however, wasn't in equities. Gold (GC=F) staged a historic breakout, surging approximately 60% in its strongest performance in decades. Conversely, digital assets decoupled from the risk-on vibe, with Bitcoin ($BTC-USD) retreating -6.3% for the year.

WHAT WORKED

The "Broadening Bull" Thesis

In our January outlook, we argued that for the bull market to survive, participation had to widen beyond the "Magnificent 7." That thesis was validated in the second half of 2025. While the Mag 7 still performed, they accounted for only 42.5% of the S&P 500's total return—the first time since 2021 they contributed less than half. Investors who rotated into Communication Services (+33.7%) or held steady with broad industrial exposure captured significant alpha without the concentration risk.

Economic Optimism was the other winning trade. The consensus view entering 2025 was that the "long and variable lags" of monetary policy would finally bite. Instead, the US economy accelerated, posting a stunning 4.3% annualized GDP growth in Q3. Portfolios positioned for a "soft landing" (or no landing at all) outperformed defensive allocations significantly.

WHAT DIDN'T WORK

The Commodities Supercycle (Ex-Gold)

We must acknowledge a significant miss in the commodities complex. While we correctly identified the potential for precious metals, the broader commodities supercycle thesis collapsed under the weight of deflationary energy prices. WTI Crude Oil (CL=F) fell 20% to settle at $57.42/bbl, dragging the Materials sector to a -10.5% return—the worst performance of any sector in 2025. Our overweight call on energy producers was a detractor, as efficiency gains and non-OPEC supply overwhelmed demand.

Crypto Beta also failed to materialize. The correlation between high-beta tech and crypto broke down in 2025. While the Nasdaq (IXIC) rallied +21.1%, Bitcoin finished in the red. The assumption that "risk-on" in equities would automatically lift digital assets proved costly for diversified aggressive portfolios.

KEY LESSONS

1. GDP Trumps Yield Curves. The yield curve inversion signal, which had haunted markets for two years, proved to be a false positive for recession. The lesson: In an economy dominated by services and fixed-rate debt, the transmission mechanism of higher rates is slower and weaker than historical models suggest. With Q3 GDP at +4.3%, the real economy proved far more interest-rate insensitive than feared.

2. The Fed Follows, It Doesn't Lead. Markets spent the first half of the year obsessing over when the Fed would cut. But the rally didn't wait for the pivot. By the time the Federal Reserve actually delivered its 75bps of cuts (ending at 3.50%-3.75%), the S&P 500 was already trading near highs. Price action leads policy, not the other way around.

THE YEAR AHEAD

We exit 2025 with the 10-Year Treasury Yield (TNX) at 4.18% and valuations elevated but supported by robust earnings growth. The "wall of worry" has been climbed, and sentiment is undeniably bullish. Analysts at Goldman Sachs ($GS) are already projecting another 12% total return for 2026.

But as we turn the calendar, the question shifts from "Is a recession coming?" to "How much growth is priced in?" With the VIX subdued at 14.95, complacency is now the primary risk. We will unpack the full 2026 framework in tomorrow's Yearly Kickoff.