2025 Stock Market Highlights: Volatility, AI Boom, and a Steady Climb
As 2025 draws to a close, the U.S. stock market has delivered a year of sharp twists and turns, ultimately rewarding patient investors with solid gains. The S&P 500, a benchmark for large-cap U.S. equities, has risen approximately 15% year-to-date, cresting over 6,900 on December 11 after starting the year near 5,881. This performance comes amid geopolitical tensions, Federal Reserve policy shifts, and the relentless hype around artificial intelligence (AI), which fueled mega-cap tech stocks while broader market participation lagged at times.
Key Highlights of 2025
The year began with optimism but quickly faced headwinds, including fears of an economic slowdown, persistent inflation, and policy uncertainties under the new administration. Here's a breakdown of the major themes and events:
• Early-Year Dip and April Lows: The S&P 500 started strong in January with a 2.7% gain, buoyed by holiday momentum and expectations of rate cuts. However, February (-1.4%) and especially March (-5.8%) saw sharp declines, driven by labor market jitters, aggressive trade policies, rising layoffs, and consumer sentiment lows. By April, the index bottomed out around 5,569, marking a roughly 10% correction from January highs amid tariff threats and government shutdown concerns.
• Mid-Year Recovery Fueled by AI and Rate Cuts: May kicked off a robust rebound (+6.2%), with the index climbing to new highs by July, up nearly 35% from April lows. AI infrastructure spending exploded, propelling tech giants and growth stocks—the Russell 1000 Growth Index outperformed value by wide margins in Q2 and Q3. The Federal Reserve's September pivot to easing, including a 0.25% rate cut, further boosted sentiment, with the S&P surging 7.6% in Q3 alone for a year-to-date gain of 13.5% by September's end. Sectors like technology and communication services led, with the former up over 30% in the trailing six months as of late November.
• October Momentum and November Pause: October delivered another 2.3% advance, pushing YTD returns to 17.5%, largely on AI optimism despite energy concerns around data center demands. November was flatter, with the S&P up just 0.13% amid profit-taking in tech (-4.8%) and mixed economic data, including a government shutdown that delayed key reports. Healthcare surged 9.3%, providing defensive ballast, while emerging markets lagged with a 2.4% monthly drop.
• Broader Market Dynamics: Small-caps (Russell 2000) trailed large-caps, up only 14.4% YTD versus the S&P's 16%, reflecting sensitivity to higher rates early on. Gold shone as a safe haven, up over 60% YTD amid fiscal worries and a weakening dollar. The Dow Jones Industrial Average gained 13.9% YTD, while the Nasdaq Composite outperformed at 20.1%, underscoring tech's dominance.
• Policy and Global Influences: The Trump administration's tariff proposals sparked volatility, but resilient consumer spending and corporate earnings (projected 12% EPS growth for 2026) supported recovery. Internationally, European equities edged out the U.S. in November (+1.1%), aided by lower tech concentration. Oil prices remained volatile, ending Q3 slightly down at $62/barrel.
S&P 500 Performance Chart: Monthly Closes in 2025
To illustrate the year's rollercoaster, here's a line chart showing the S&P 500's approximate end-of-month closing levels. Note the steep Q1 drop, followed by a steady uptrend through year-end.1
Looking Ahead
With the Fed’s December rate cut of .25% in place and AI investments showing no signs of slowing, 2026 could extend this momentum—but watch for tariff impacts and election aftershocks. In 13 out of 13 instances where the Fed cut rates at near all-time highs in the market, the S&P 500 has delivered positive returns over the next 12 months. Volatility is the admission ticket for long-term equity returns, so staying the course can compound over time. Diversification remains key in a market where the top 10 S&P stocks now comprise nearly 40% of the index.
“As we approach 2026, BlackRock's latest equity market outlook paints a constructive picture for global stocks, emphasizing the ongoing AI revolution while highlighting untapped potential in international markets. Despite 2025's volatility—driven by interest rates, tariffs, geopolitics, and AI skepticism—global equities are on track for a third straight year of double-digit returns. BlackRock remains ‘forward leaning,’ viewing AI as a transformative force still in its early innings, with opportunities broadening beyond a handful of U.S. mega-caps.”2
While no one can predict the direction of the markets, staying diversified, having a long-term asset allocation strategy, and constructing an alpha-additive portfolio are the best ways to maximize wealth creation.
If you have questions or would like to discuss your financial plan and portfolio, please contact your Advisor. We are here to help you navigate in uncertain times.
1 Source datA: Fidelity.com
2 BlackRock's Q1 2026 Equity Market Outlook