The fourth quarter of 2025 was a good end to a great year that will long be remembered for having witnessed an artificial intelligence (AI) explosion that affected virtually every sector of the U.S. economy. In addition, the Federal Reserve cut interest rates by 75 basis points over the course of the year while earnings growth for the S&P 500 Index was forecasted to be north of 10% for the full year. There were pockets of outstanding performance, including gold and mining stocks, as well as biotechnology stocks over the year’s second half.
Our key areas of focus include:
- AI differentiation: In 2025, there was a massive amount of capital expenditure invested in AI-related technology and venture capital financing was robust for AI-native startups. This year, we believe investors will focus intently on determining the ultimate return on this invested capital that could lead to winners and losers across the AI landscape.
- Cost of capital: The Fed’s “dot plot,” its own prediction of future rate cuts, shows just one rate cut on the docket for 2026. This would put the federal funds rate in the mid 3% range, which is near the long-run average. The bond market, on the other hand, is pricing in two rate cuts for 2026. How this plays out will have a big impact on asset prices.
- Fiscal policy: The consensus expectation is for an accommodative fiscal policy backdrop for markets, including tax refunds and financial deregulation. If this comes to pass, it would be generally supportive to risk assets and provide support for another good year in the market.
The good times have rolled on for investors over the past three years. It seems reasonable to assume there might be a pause or outright pullback in 2026. This may very well occur. However, there are reasons to believe that a variety of factors could support a fourth year of positive or even strong market performance. Markets can trend longer than we expect, but they can also reverse course on a dime. As prudent investors, we must be ready for any and all trajectories.
Read the full Q4 2025 Portfolio Insights.