Bruce Helmer and Peg Webb
After a year filled with geopolitical tension, interest-rate speculation, and nonstop headlines, investors may be surprised by how 2025 ultimately turned out. Despite plenty of uncertainty, markets produced strong returns and offered several valuable lessons as we head into 2026.
Not the usual suspects
U.S. stocks logged their third straight year of double-digit gains in 2025, defying expectations that higher rates and economic headwinds would slow momentum. Just as important, gains were broader than in prior years. While artificial intelligence continued to dominate market narratives, performance spread across many sectors, signaling a healthier, more durable market environment.
International stocks also had a standout year. Emerging markets surged more than 30%, with developed markets outside the U.S. not far behind. A weaker U.S. dollar and easing global monetary policy helped fuel those gains, reminding investors of the value of maintaining global diversification.
Interest rates took center stage
Monetary policy remained a key driver of markets. After holding rates steady for much of the year, the Federal Reserve cut interest rates three times late in 2025, bringing its target range to roughly 3.5% to 3.75%. Those moves supported both equity and bond markets and shifted expectations toward additional easing ahead.
Economic data painted a mixed but stable picture. Unemployment ticked higher to about 4.6% by year-end, yet the labor market remained resilient. Jobless claims stayed relatively low, suggesting the economy may be cooling but not cracking.
Treasury yields declined toward year-end as investors anticipated further rate cuts in 2026, reflecting growing confidence that inflation pressures were easing.
Looking ahead: cautious optimism for 2026
As 2026 unfolds, our outlook remains constructive, but cautious. Markets appear to be pricing in roughly two additional Federal Reserve rate cuts this year, though the timing remains uncertain. Adding to the intrigue is a potential leadership change at the Fed mid-year. While that transition will attract attention, we have to remember that monetary policy decisions are made by a committee, not by a single individual. Still, a dovish Fed could cause the economy to run hotter than we might want for market stability.
Globally, growth expectations remain steady. The International Monetary Fund forecasts U.S. economic growth of about 2.4% this year, with global growth holding near 3.3%. Emerging economies are expected to outpace developed ones, continuing a trend that benefited investors in 2025.
Risks haven’t gone away
Geopolitical risks remain elevated. Ongoing conflicts in Ukraine and the Middle East, unrest in Iran, and ongoing energy-market disruptions continue to inject volatility. Trade policy also remains a wildcard, with sovereignty questions over Greenland, tariffs, and legal uncertainty still unresolved.
That said, many multinational companies have already adapted their supply chains and operations, helping to blunt the economic impact of trade tensions so far.
AI: from market darling to productivity test
Artificial intelligence remains one of the most influential forces in the market, but the conversation is evolving. With AI driving significant equity gains over the past two years, investors are increasingly focused on execution and productivity, not just market size and potential.
Market leadership has started to broaden beyond mega-cap technology stocks into areas like financials, cyclicals, and smaller companies. This serves as a useful reminder that leadership rotates, and diversification still matters.
What investors should take away
One notable shift is the changing relationship between stocks and bonds. Correlations have weakened, making diversification across asset classes more valuable than it has been in years.
Rather than reacting to headlines, investors may benefit from rebalancing portfolios, revisiting allocations, and staying focused on long-term goals. Markets will remain noisy. But disciplined, plan-driven investing continues to be one of the most reliable ways to navigate uncertainty.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Bruce Helmer and Peg Webb are financial advisers at Wealth Enhancement Group and co-hosts of “Your Money” on WCCO 830 AM on Sunday mornings. Email Bruce and Peg at yourmoney@wealthenhancement.com. Advisory services offered through Wealth Enhancement Advisory Services LLC, a registered investment adviser and affiliate of Wealth Enhancement Group.
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