2025 Market Review

January 6, 2026

Below are the final tallies for 2025 (plus the last few years).  It was another good year for the market.  The S&P 500 returned +17.7% in 2025.  

The big winner was of course AI, which drove returns in large cap tech stocks, such as Nvidia, Alphabet (aka, Google), and Broadcom.  These three mega-caps outperformed the market (and other tech stocks) by a wide margin.  

Over long periods of time, the stock market returns about 8-12% per year.  And for the third year in a row, the S&P 500 was well above that.  Even over the past 10 years, it was above the average — +14.5%.  What has driven this?  Large cap tech.  

In the table below, compare the second and third lines from the top.  Those are the lines for the Nasdaq 100 (i.e., the large cap tech stocks) and the S&P 500 Equal Wt. (i.e., the straight average of the 500 components).  

The S&P Equal Wt. returns are more line with long-term averages – +11.1% per year over the past 10 years.  But the Nasdaq 100?  +19.4% over the past 10 years.  Big cap tech has been the key horse pulling this carriage.  

In the list of Sectors, you can see this again. Technology and communication services once again led all other sectors in recent years.

In the list of Largest Stocks, you can clearly see the outsized returns from AI stocks – Nvidia, Broadcom generated annual returns of 134% and 83% respectively over the past 3 years.

This of course begs the question:  What comes next?  Have we come too far too fast?  We’ll tackle that question tomorrow with our 2026 outlook.  

But there’s one other data point I want to point out from last year.  The drop in short term interest rates.  

Job growth has slowed dramatically in recent months.  And inflation seems somewhat contained.   And so, the Fed has been cutting interest rates.  The Fed Funds rate is an overnight lending rate between banks.  It has a direct impact on the short-term interest rates on treasury bills.  And that has a direct impact on the yield that you get on your CDs and money market accounts.   That is why those yields have been coming down over the past six months.  And if the market is correct, those yields will keep dropping in 2026 down to the 3%-ish range.