As 2025 comes to a close, it’s a good time to pause and look back at the year that was. It was a year marked by shifting expectations, plenty of headlines, and a mix of encouraging signs and lingering questions about the economy. Before turning the page to a new year, stepping back can help to put the bigger picture into perspective and make it easier to see what shaped the months behind us.
With that in mind, here’s a brief look at the key economic themes that defined 2025 - from growth and inflation to jobs, interest rates, and the market’s response along the way.
The year in brief...
In 2025, two very different “trades” dominated market conversations. One was the ongoing artificial intelligence (AI) trade. The other was a new U.S. trade policy under a new White House administration, and the global response that followed. Together, these forces shaped much of the market’s direction throughout the year.
Despite notable challenges, economic tailwinds helped stocks push through the headwinds. A resilient economy, steady consumer spending, easing inflation during the first part of the year, Federal Reserve rate cuts, strong corporate earnings, and continued momentum in the AI space - especially among megacap tech chipmakers - all played a role. As a result, all three major U.S. market indexes posted double-digit gains for the year through mid-November, with non-U.S.-based stocks performing even better overall.¹
That strength is especially noteworthy given the obstacles investors faced. Uncertainty tied to tariffs, lingering inflation concerns, a record-long government shutdown, elevated stock valuations, and a struggling labor market all weighed on investors. Geopolitical tensions in the Middle East, particularly over the summer, added another layer of caution along the way.
The US Economy...
After a small dip at the start of the year, the economy found its footing as the months went on. Consumers continued spending, which helped fuel steady growth through the spring and summer. Economic growth picked up in the second quarter and stayed strong into the third, suggesting the economy found its footing after a slow start.²˒³
That said, it hasn’t been a smooth ride. Much of the uncertainty this year has centered on new U.S. tariffs and how they might affect prices and profits. Many businesses and consumers rushed to make purchases early in the year, before those tariffs took effect. Once they did, spending slowed for a bit as everyone took a step back to see how higher costs might show up at the checkout counter.⁴
The job market has also showed signs of slowing. Hiring slowed noticeably mid-year, and at one point, job losses even showed up in the monthly numbers. Then, in September hiring rebounded, which was an encouraging sign. Unemployment has remained relatively low by historical standards, though it did tick higher toward the end of summer. Where job growth goes from here is still an open question.⁵˒⁶˒⁷
Inflation meanwhile, has been fairly well-behaved overall. After easing in the early months of the year, however, prices began to creep higher again as the year went on. That brings us to the Federal Reserve, whose mandates are to keep inflation under control, while also supporting a healthy job market.⁸
The Fed held interest rates steady through July, but by late summer, the policymakers began signaling growing concern about the job market. Rates were lowered slightly in September, followed by another small cut in October, though officials were careful to note that future moves would depend on incoming data. Delays in key economic reports due to the government shutdown added another layer of uncertainty, making those decisions more challenging. As always, economic conditions can shift, and forecasts may change as new information becomes available.
Despite all the uncertainty, the stock market has held up well in 2025. Strong quarterly earnings - especially from large technology companies tied to AI - have helped lift the major stock market indexes in 2025. Through mid-November, the major stock averages were all solidly up for the year, reflecting a market that has remained resilient even in a shifting economic environment.¹²
The Global Economy...
The global economy had a lot to contend with in 2025. Lingering supply challenges from the post-pandemic period, a weaker global growth outlook, and fluctuating energy prices all played a role in shaping markets around the world. On top of that, central banks' staggered rate moves added another layer that helped to shape the markets.
Despite those challenges, several international markets performed well. European stocks benefited from resilient export activity and strength in industries that tend to move with the economic cycle. Japan also saw gains, helped in part by a weaker yen, which made its exports more competitive. At the same time, trade tensions, particularly between the U.S. and China, as well as European duties on Chinese electric vehicles continued to affect supply chains. Inflation also proved stubborn in some regions, keeping market volatility elevated, resulting in performance that varied from one country to the next.¹³˒¹⁴
This led to non-U.S. developed markets, as a whole, posting their best performance in years. International stock indexes posted impressive gains through mid-November, with several European countries seeing standout performance. Spain led the way, followed by strong results in Italy, Germany, the United Kingdom, and France. Most European markets finished the year higher, though Denmark was a notable exception. In the Pacific region, South Korea posted especially strong gains, while Hong Kong and Japan delivered returns similar to Europe. Australia also saw gains, though more modestly.¹⁵
The market indexes discussed are unmanaged and generally considered representative of their respective markets. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results. International investments carry additional risks, including differences in financial reporting standards, currency exchange rates, country-specific political risks, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.
As we look ahead to 2026, the job market will remain an important area to watch. Trends in hiring and unemployment will help shape how confident consumers and businesses feel in the months ahead. While inflation has cooled and is now at a level close to the Fed's target, recent upticks will be watched closely by economists and investors alike. Any future rate decisions by the Fed will also continue to influence the markets.
With the government reopened, delayed economic reports - such as those tied to employment and inflation - will gradually be released and analyzed. These updates will give policymakers a clearer picture of where the economy stands and help guide monetary policy going forward.
Investors will also be keeping a close eye on the technology sector, particularly companies tied to artificial intelligence, after their significant role in market gains during 2025. While trade policy and tariffs may generate fewer headlines in the year ahead, the U.S. consumer will remain a key focus, as the majority of GDP is a result of consumer spending.
No matter what 2026 brings, preparation remains key. That's why we work closely with our clients to make sure their financial strategies align with their goals, timelines, and risk tolerance. The economy will always move through cycles, and our goal is to help you stay informed and confident, whether markets are reaching new highs or navigating tougher times.
Wishing you a happy, healthy start to 2026.
Footnotes and Sources
1. WSJ.com, November 14, 2025
2. WSJ.com, September 25, 2025
3. Atlanta Federal Reserve, October 27, 2025
4. TradingEconomics.com, November 14, 2025
5. TradingEconomics.com, November 20, 2025
6. TradingEconomics.com, November 20, 2025
7. WSJ.com, November 20, 2025
8. TradingEconomics.com, November 14, 2025
9. WSJ.com, March 19, 2025
10. CNBC.com, June 24, 2025
11. WSJ.com, October 29, 2025
12. WSJ.com, November 14, 2025
13. World Economic Forum, November 11, 2025
14. T. Rowe Price, November 14, 2025
15. MSCI.com, November 17, 2025