S&P 500 index funds returned more than 18% in 2025 through Dec. 11 and set a record high that day, marking the third straight year of strong performance.
Tariff Tremors
President Donald Trump announced a sweeping set of tariffs on April 3, a day that sent the S&P 500 down nearly 5%-the worst single-day drop since the 2020 COVID crash. The next day, a 6% plunge followed China’s retaliatory measures, heightening fears of a trade war. The tariffs also weakened the U.S. dollar and rattled the Treasury market, which is traditionally seen as the safest.
Trump paused the tariffs on April 9 after seeing the bond market “queasy,” a phrase he used to describe investor discomfort. The pause and subsequent negotiations with countries to lower proposed tariff rates helped calm the market.
Trump and the Fed
The year also highlighted Trump’s persistent lobbying for the Federal Reserve to cut rates. The Fed, which normally operates independently, kept rates steady through August as inflation stayed above its 2% target. Trump repeatedly criticized Fed Chair Jerome Powell, even dubbing him “Too Late.”
In July, Trump publicly accused Powell of mismanaging costs for a Fed headquarters renovation, to which Powell responded by shaking his head. Powell’s term as chair is set to expire in May, and many expect Trump to name a successor more inclined to lower rates.
Global Markets and AI Fervor
While U.S. stocks surged, foreign markets often outperformed. South Korea’s KOSPI recorded its biggest gain in over two decades, driven by AI-related investment in companies like Samsung and SK Hynix. Japan’s Nikkei 225 posted a double-digit gain for the third straight year, buoyed by elections and a $135 billion stimulus package.
European markets also rallied. Germany’s DAX benefited from infrastructure and defense spending plans, and the European Central Bank’s rate cuts in the first half of the year lifted markets across the continent. France’s CAC 40, however, lagged behind.
Crypto’s Ups and Downs
Cryptocurrencies experienced volatility throughout the year. Bitcoin fell early as Trump’s trade policies scared risk-takers, but later rebounded as the White House and Congress expressed support for digital assets. Retail investors poured money into bitcoin ETFs, and companies like Strategy Inc. saw their stocks rise.
Bitcoin peaked near $125,000 in early October before tumbling to around $89,400, a decline of roughly 28% from its high and 4% below its year-start level.
Outlook for 2026
Many professional investors anticipate further gains in 2026, citing expectations of a steady economy and continued corporate profit growth. FactSet analysts project earnings per share for S&P 500 companies to rise 14.5% in 2026, up from 12.1% in 2025.
However, concerns remain that the surge in AI investment may not translate into sufficient profits or productivity. Stocks like Nvidia and Broadcom, which drove much of the market’s gains, could feel pressure. Across the market, prices have climbed faster than earnings, leading strategists at Vanguard to estimate only 3.5% to 5.5% annualized returns over the next decade.
Bank of America strategist Savita Subramanian noted that the S&P 500 could rise less than half as much as profits in 2026, citing potential reductions in stock buybacks and fewer rate cuts by global central banks.
Key Takeaways
- S&P 500 returned 18% in 2025, reaching a record high on Dec. 11.
- Trump’s tariff shock and subsequent pause, plus Fed-Powell tensions, shaped market volatility.
- Global markets, especially Korea and Japan, outperformed the U.S., while crypto saw sharp swings.
The year underscored how policy decisions, technological hype, and central-bank actions can drive market dynamics, setting the stage for the next phase of economic and financial developments.
