Q4 2025
Dear Client,
Happy New Year! It has been an unusually warm and mostly snow-free winter here in the mountains, which has led to sub-par skiing conditions. Nonetheless, our holiday season was filled with family, friends, and making merry memories. We hope you all enjoyed the holidays as well, and share our hope and optimism as we look to the new year. As we move into tax season, please don’t hesitate to reach out. We are happy to provide reports to you or to your tax preparer. We are also eager as ever to hear from you about your finances in general if you would like to arrange a time to meet virtually or in person.
2025 was a heck of a year. We began the year at the tail end of a rally post-election, then experienced a correction and eventually a bear market around the tariff tantrum. The market then bounced quickly out of that hole, and didn’t really look back. The balance of the year saw a lot of noise and several unprecedented situations originating in Washington, but there were no further significant hiccups for the major indices. The AI revolution continued to power the largest companies in the world as they got larger. There were also several attempts to expand the rally, we’ll see whether that trend can play out more fully in 2026.
The index returns for Q4 and for Full Year 2025 are as follows (calculated from www.stockcharts.com):
S&P 500 change: 2.71% Q4, 15.96% FY
S&P 500 Equal Weight Index change: 0.92% Q4, 9.34% FY
Nasdaq Composite change: 3.16% Q4, 19.78% FY
Nasdaq Composite Equal Weight Index change: 0.85% Q4, 13.02% FY
Dow Jones Industrial Average change: 3.66% Q4, 12.67% FY
Ten Year Treasury Yield change: 1.34% Q4, -7.92% FY
Crude Oil (WTI Front Month Contract) change: -6.74% Q4, -20.08% FY
Gold (GLD ETF) change: 11.27% Q4, 62.28% FY
Takeaways include:
2025 was the third consecutive year of positive double-digit returns for the large equity indices.
For 2025, the concentration of the top ten largest stocks in the S&P and the Nasdaq increased. This makes the rally a bit fragile in one sense, but also offers room for expansion/rotation of the rally into the remaining, smaller companies in the indices.
There was another ¼ point rate cut from the Federal Reserve Board of Governors in December. Fed Chair Powell indicated, and the minutes showed, that this was heavily debated. At his press conference, Mr. Powell made it quite clear that there would not be another cut coming without significantly greater clarity from subsequent data showing the necessity for further easing.
Despite the cuts to short term rates (or maybe as a result of), longer term treasury rates climbed during the 4th quarter. This is indicative of increased expected inflation. That tracks with the concern expressed by Fed Chair Powell and others, that cutting rates now could increase the likelihood of inflation becoming more entrenched.
Oil continued lower during the quarter and finished the year 20% down. That is probably good for inflation and cost of living for most people. Clearly the recent events in Venezuela and potentially in Greenland will have bearing on the energy complex as a whole.
Gold continued a historic rally, thrilling gold bugs, and scaring the rest of us. The desire to put large portions of an individual’s or a country’s assets in an inert, albeit shiny, metal does not speak to an optimistic outlook for future growth and harmony in the world.
The consensus of analysts and strategists is for a fourth year of positive returns for the indices in 2026. The justification for continuing higher is generally based on increasing earnings from the companies that comprise the indices, rather than multiple expansion (meaning investors are willing to pay more per dollar of earnings). To revisit a theme from some of our older notes; Financial theory explains that price can grow based on earnings growth, or multiple expansion. We are at the historical upper limits of multiples now; the forward PE ratio of the S&P 500 has been around 22 for the last several months. Assuming that won’t go much higher, then the only way for prices to go higher is earnings growth. The consensus estimate for earnings growth in 2026 is 15% (Factset Earnings Insight 12/19/2025). While that number will likely fluctuate as the year plays out, it at least tells us that based on a fixed multiple, analysts are predicting around 15% price appreciation for the S&P 500 for 2026.
We believe that while strength generally begets strength in markets, it will very likely be a bumpy road this year. Even before the recent news concerning Venezuela and Greenland, we were entering a year with a lot going on in the geopolitical sphere. Here in the US we are approaching midterm elections in a particularly contentious and divided time. In addition, market valuations and expectations are at highs. All of that leads us to think that people will have itchy sell-fingers this year. The question is whether each fluctuation in the market is a buying opportunity, or the beginning of a more significant correction/bear market (which is also an opportunity, on a longer horizon).
There is a long way to go between now and December, and we will be here working hard to anticipate, adapt, and invest on your behalf throughout.
We wish you all the best for a happy, healthy, prosperous, and peaceful 2026!
Take care,
Bo and Lesley
