Economy – Tailwinds for growth continue to outweigh weak soft data and a softer labor market
GDP estimates reflecting Q3 2025 came in at a robust +4.3% annualized rate as consumer spending, led by higher-earning households, remained robust.
AI-related capital expenditures, looser monetary policy, lower-than-expected inflation, and impending tax cuts should all provide tailwinds for further expansion into 2026.
Non-farm payroll growth remains in clear downward trend and the unemployment rate ticked up to 4.6%, giving the Fed and economists reason to keep the labor market under a microscope.
Equity – Another positive quarter for stocks across the globe put a bow on a strong year
The S&P 500 was up +2.65% in Q4 as tech and AI remained dominant themes, but there are signs of broadening outside of the Mag 7.
U.S. Small Cap stocks measured by the Russell 2000 followed an extremely strong Q3 with a +2.19% gain in Q4.
International and Emerging Market stocks were clear winners in 2025 with gains exceeding +30.00% for the year. Q4 was no different with the MSCI ACWI ex USA index up +5.05% and the MSCI EM index up +4.73%.
Fixed Income – Fed cuts and tight credit spreads buoy bonds
The U.S. Federal Reserve cut rates by 25 bps at each of their three meetings in Q4, pulling short-term rates lower. Further cuts are not a foregone conclusion and may be dictated more by the labor market than inflation for now.
The Bloomberg U.S. Agg index rose +1.10% in Q4 to finish a strong year up +7.30% in 2025
Risks/Other Considerations
AI hype and capital expenditures have driven huge amounts of capital into the space. How AI as a technology evolves could power profits and stock prices higher or could as easily morph into an unsustainable bubble.
Policy uncertainty in the U.S. under the new administration remains extremely high, adding a layer of volatility and risk to the economy and markets that is difficult to predict or quantify.
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Market Review
Q4 2025: Market Rally Continues But Not Without Questions
Technology Drove Returns, But Signs of Broadening Emerge
Artificial Intelligence Remains the Dominant Market Theme…
…Which Begs the Question: Are We in a Bubble?
Market Prices AND Market Concentration At All-Time Highs
“K Shaped” Economy Being Talked About Again
Growth Style Dominates Again After Slow Start in 2025
Quality Factor Remains a Headwind, Particularly in Small Caps
“Submerging” Markets No More!
Interest Rate & Fixed Income Outlook
2026 Outlook: Optimism Abounds But Realism Warranted
Appendix: Private Markets Update
Appendix: Private Credit
Appendix: Municipal Bonds
Sources:
Morningstar
ACG
Federal Reserve
Factset
JP Morgan
Hedgeye
Blackstone
Alpine Macro
Blackrock
MSCI
Fama & French
Tuck School of Business at Dartmouth
Acadian
CRSP
Howard Marks
Ray Dalio
Goldman Sachs
Compustat
Kenneth French
Bank of America
Truist
Factset
Morning Consult
Apollo
Charles Schwab & Co.
Russell Investments Group
Research Affiliates
Marquette Associates
AllianceBernstein
Standard & Poor’s
Federal Reserve
Deutsche Bank
Pitchbook
Hamilton Lane
S&P Global
U.S. Census Bureau
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