Quarterly Market Review 2025 Q4

2025 was a positive year for investors but also served as a reminder of the importance of diversification. After a decade of U.S. stock market dominance, 2025 saw the opposite as growth started to broaden out across the globe.

Markets navigated several competing forces in 2025. The first half of the year was shaped by heightened trade concerns after the U.S. raised tariff rates to levels not seen since the 1930s. These developments triggered a sharp market decline in early April, with developed market equities falling 16.5%.

In the second half of the year, investor attention shifted as the Federal Reserve started cutting interest rates, which lifted returns across asset classes. The fourth quarter of 2025 capped a year of generally strong performance across global financial markets, with stocks leading returns and bonds providing renewed stability. The fourth quarter was an extended period of broadly positive returns across equities and improving conditions in fixed income.

While markets experienced periodic volatility related to interest rates, inflation expectations, and geopolitical developments, markets proved resilient. As a result, 2025 marked the first year since the pandemic in which all major asset classes delivered positive returns.

Here are a few data points from Q4 and 2025 overall:

• For the first year since the 2020 COVID pandemic, 2025 delivered positive returns in all major asset classes.

• The U.S. stock market gained 2.43% in Q4 despite negative returns in October and November due to tech sector volatility and ended 2025 up 17%.

• Value stocks (+4.15%) outperformed growth stocks (-1.6%) as some of the largest tech firms struggled in Q4.

• International stocks and Emerging Markets stocks stole the show in 2025, delivering 32% and 33.6% gains, respectively.

• U.S. bond market was up 7.3%, with the Federal reserve cutting rates by 0.25% in October and again in December.

  
  

Below is a snapshot of key top-line economic indicators:

U.S. Stocks

U.S. stocks posted modest gains (up 2.4%) during the fourth quarter, leading to a 17% increase for the year. Corporate earnings remained resilient, with Artificial intelligence (AI) continuing to be the main force shaping U.S. stock market performance in 2025.

That said, as investors became more focused on identifying which companies are most likely to benefit from AI over the long term, performance within large technology stocks became more mixed. Only two of the “Magnificent Seven” companies outperformed the broader S&P 500 index in 2025.

Companies in the communication services and information technology sectors led the market, posting strong returns of 33.0% and 23.6%, respectively. Consumer-focused sectors struggled during the year as slower job growth weighed on consumer confidence. Companies were also cautious about raising prices to offset higher tariff-related costs, reflecting concerns about weakening demand. While this restraint helped prevent a sharp rise in inflation, it also limited earnings growth and returns in these sectors.

Despite 17% gains in 2025, notably, the past year marked the first time in 20 years that the S&P 500 was the weakest-performing major equity market.

International Stocks

International developed markets and emerging markets both handily outperformed U.S. stocks during the fourth quarter and were among the strongest performers for the full year, ending at +31.9% and 33.6%, respectively.

A weaker U.S. dollar enhanced returns for U.S.-based investors, while improving economic conditions in parts of Europe and Asia supported equity markets abroad. European equities lagged other regions in local currency terms during a year of strong global equity performance. However, currency movements played a significant role in shaping investor outcomes. These factors combined to make international stocks an important contributor to overall portfolio performance in 2025.

Emerging markets equities also delivered strong results in the fourth quarter and over the year as a whole. Improved global growth expectations, easing financial conditions, and targeted stimulus measures in several key countries helped drive returns. Chinese equities performed well, gaining 31.4% in 2025, even after a rough Q4 in which the stock market fell -6.8%. Advances in domestically developed AI technologies supported China’s technology sector, while efforts to diversify trade relationships helped exports remain resilient despite U.S. tariffs. While emerging markets remained more volatile than developed markets, investors were compensated with higher returns over the course of the year.

Fixed Income

In the U.S., the widely feared tariff-driven surge in inflation did not materialize. At the same time, increasing signs of softness in the labor market prompted the Federal Reserve to cut interest rates by a total of 75 basis points in the second half of the year. As a result, the federal funds rate target range is now 3.50%-3.75%, down from 4.25%-4.50% at the start of 2025.

The rate cut decisions occurred amid an unusual degree of disagreement among Federal Reserve officials. Some policymakers supported additional easing to help sustain a cooling labor market and provide insurance against a potential economic slowdown. Others favored a more cautious approach, citing concerns about inflation, which has moderated significantly from its 2022 peak but remains above the Fed’s long-term 2% target.

Either way, the rate cuts helped support bond prices and contributed positively to overall bond market returns.

Ongoing fiscal concerns continued to pressure government bond markets, leading yield curves to steepen across all major regions. Despite uncertainty around the longer-term implications of the One Big Beautiful Bill for U.S. debt sustainability, U.S. Treasuries delivered the strongest performance among major government bond markets, returning 6.3% in 2025.

U.S. bonds generated positive returns in the fourth quarter, benefiting from declining yields and increased confidence that inflation was moderating. After a challenging period in prior years, bonds once again played a stabilizing role in portfolios and contributed meaningfully to returns in 2025.

Government bond performance varied meaningfully across regions in 2025, reflecting differences in fiscal policy, political stability, and central bank actions. Except for the U.S. and the U.K., interest rates generally increased across global developed markets. In the U.K., a cooling labor market and easing wage pressures that allowed the Bank of England to cut interest rates by 1% throughout the year, leading to 5% returns.

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Sincerely,

Your Taurus Capital team