Jan 08 • 4 min read
State of the Markets (Annual Update)
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2025 is in the books—so what really mattered? Information was everywhere, headlines were loud, and emotions often ran high. But beneath the distractions, the signal is clear: Consumers remain resilient, companies continue to adapt, and there are reasons for cautious, long-term optimism. In today’s email, I’m sharing updates on:
My goal is to cut through the noise and help you stay focused on the bigger, long-term picture as we look ahead. Asset Class Performance2025 was another remarkable year for investors. Here are total returns as of December 31, 2025: Stock Indexes
Bond Indexes
Strong global equity performance combined with healthy bond returns made 2025 a broadly rewarding year across diversified portfolios. The State of the Consumer1. Household net worth continues to reach new heights American consumers are collectively in the strongest financial position on record. As of the second quarter of 2025 (most recent data) household net worth reached approximately $167 trillion, and that figure is almost certainly higher today following continued asset appreciation in the second half of the year. What’s especially notable is how that wealth was built. Since the start of 2020, household assets have grown by roughly $60 trillion, while liabilities increased by just $4 trillion. In simple terms, for every dollar of new debt, households added about $15 in assets. Despite how extraordinary this shift has been, it has received surprisingly little attention. 2. Household cash flow remains resilient While cost-of-living pressures have been real, consumers across all income levels still hold more inflation-adjusted cash in deposit accounts than they did in 2019. At the same time, the household debt-service ratio—the percentage of income required to service debt—remains lower than at any point between 1980 and 2020. Together, these factors provide a meaningful financial cushion, even amid ongoing economic uncertainty. 3. Inflation fears dominated headlines—but didn’t materialize Entering 2025, many expected a renewed surge in inflation. That spike never arrived. The most recent reading came in at 2.7%, below December 2024 levels. Still, uncertainty (particularly around tariffs) kept the Federal Reserve cautious for much of the year. Ultimately, the Fed lowered rates by 0.75% in 2025, resuming cuts later in the year after a prolonged pause. The State of Companies1. Economic growth proved more resilient than expected Early in the year, growth forecasts were revised lower amid concerns around tariffs and global trade. Yet real GDP is now expected to come in around 2.6%, largely in line with initial expectations. This outcome highlights the adaptability of businesses operating in the U.S. and abroad, an encouraging signal for long-term investors. 2. Corporate profitability reached new highs Despite persistent concerns about rising costs and margin pressure, corporate profits once again exceeded expectations. The S&P 500’s net profit margin reached 13.1% in the most recent quarter, the highest level in more than 15 years. That strength showed up in market results. Strong profitability helped drive 39 new all-time highs for the index in 2025 and a total return of nearly 18%. Even amid ongoing uncertainty around tariffs and input costs, corporate America continued to deliver. The State of Investing1. Gains were broad-based It wasn’t just large U.S. stocks that performed well. International equities, bonds, small-cap stocks, real estate, gold, silver, and even cash all posted positive returns. When most major asset classes move higher at the same time, diversified portfolios tend to benefit meaningfully, and that was clearly the case in 2025. 2. A word on gold and silver Precious metals had a standout year. Gold finally surpassed its prior inflation-adjusted all-time high, a level last reached more than 45 years ago. Silver also hit a new nominal high but remains well below its inflation-adjusted peak, needing to more than double to match its 1980 level. For perspective, over that same 45-year period, $1,000 invested in U.S stocks would have grown to more than $170,000. It’s a useful reminder of the long-term wealth-building power of productive, revenue-generating assets. 3. Artificial intelligence dominated the conversation AI was the defining investment theme of the year, bringing equal parts excitement and skepticism. Concerns about an AI bubble are understandable given the scale of investment and rapid price appreciation. But history suggests that even when enthusiasm runs ahead of reality, transformative technologies tend to create lasting value. Railroads, electricity, and the internet all followed similar paths—periods of excess followed by decades of productivity gains. AI is already improving efficiency, decision-making, and innovation across industries. Time will tell, but history gives long-term investors reason for optimism. Bottom LineThe progress unfolding around us today is remarkable, even if it rarely makes headlines. While day-to-day news can make it feel like things are getting worse, a broader view suggests the opposite: Human progress may not be slowing down at all, but quietly accelerating. History is, at its core, a story of people solving problems that once seemed insurmountable. That same impulse—to innovate, adapt, and build something better—has powered economic growth and markets for centuries, and I believe it remains firmly intact. I hope this review helped provide clarity, perspective, and reassurance. 📚 What I've Been Reading
Thank you for reading! Please reply to this email with comments, questions, and/or feedback. Stay wealthy, Taylor Schulte, CFP® |