It’s easy to look at a chart from last year and think you’ve got it all figured out. We saw the S&P 500 climb a "wall of worry" to finish 2025 up about 17.9%, but the path was anything but a straight line. If you only look at the year-end total, you miss the absolute chaos of the April "Liberation Day" lows or the way trade policy basically held the market's head underwater for months.
Everyone was talking about 2025 stock market predictions like they were a foregone conclusion. "AI will carry us," they said. Or, "The Fed will save the day."
The reality? It was a year of two halves. The first six months were a slog through tariff uncertainty and a weirdly resilient inflation. Then, the back half turned into an "everything rally" that caught most of the bears off guard. Goldman Sachs’ David Kostin had predicted the S&P 500 would hit 6,500 by the end of 2025, and while we flirted with that, the real story was the shift from "valuation-driven" gains to "earnings-driven" ones.
The Big Pivot: Why Earnings Finally Mattered
For years, we’ve been living in a world where stocks went up because people were willing to pay more for every dollar a company made. Basically, multiples were expanding. But in 2025, that game hit a ceiling. With the S&P 500 price-to-earnings (P/E) ratio sitting at the 93rd historical percentile—around 21.7x—there wasn't much room left to stretch.
The market shifted.
Instead of just betting on "potential," investors started demanding cold, hard cash. Corporate earnings grew by about 11% in 2025. That was the engine. J.P. Morgan’s mid-year outlook actually lowered their target to 6,000 at one point because they were worried about "macro damage" from trade wars, but the "One Big Beautiful Bill Act" and an unanticipated surge in AI capital spending acted as a massive shock absorber.
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Honestly, the most surprising thing wasn't the tech giants. It was the "S&P 493." For the first time in a long time, the gap between the Magnificent 7 and the rest of the market started to close. In 2024, the Mag 7 was outperforming by huge margins. By late 2025, that lead narrowed to about 7 percentage points.
The Tariff Scare and the April Bottom
If you weren't watching the tickers on April 8, 2025, you missed one of the best buying opportunities of the decade. People were panicking. The administration had just introduced "reciprocal" tariffs on dozens of countries, and the S&P 500 lurched lower, dropping nearly 16% from its February highs.
It felt like the 1930s all over again for a minute.
Then, a temporary truce with China and a "pause" in the tariff rollout changed the vibe. The market didn't just recover; it surged nearly 39% from that April low through the end of the year. It’s a classic reminder that the market hates uncertainty more than it hates bad news. Once a "window of predictability" returned, the money flowed back in.
AI: From Chatbots to Copper and Power
We’ve moved past the "cool demo" phase of AI. In 2025, the trade became about the physical stuff. You couldn't talk about tech without talking about utilities and energy.
Fidelity’s Adam Benjamin noted that AI infrastructure buildout started looking like the transcontinental railroad projects of the 1800s. It wasn't just about who had the best LLM; it was about who had the most copper, the most transformers, and the most reliable data center real estate.
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- Hyperscalers: They kept spending, but the market started punishing them if they couldn't show a clear path to ROI.
- The DeepSeek Effect: In early 2025, the release of the DeepSeek model from China shook things up. It showed you could get high-end performance with way less computing power. This briefly tanked semiconductor stocks because investors feared the "arms race" was over.
- The Rebound: That fear was short-lived. Efficiency actually lowered the barrier to entry, meaning more companies started adopting AI, which kept the demand for chips and power high.
Interest Rates: The Fed’s Long Goodbye
The Federal Reserve was the ultimate "will-they-won't-they" drama of 2025. They eventually delivered three 25-basis-point cuts, bringing the federal funds rate down to the 3.5%–3.75% range by December.
But it wasn't the smooth ride people expected.
Inflation stayed "sticky" around 3%. Every time the Fed hinted at a cut, a hot jobs report or a spike in goods prices (thanks to those tariffs) would make them hesitate. By the time we hit January 2026, the market had finally accepted that the era of "free money" isn't coming back. We’re in a "higher for longer-ish" environment where a 3.5% rate is the new neutral.
What Actually Worked in 2025?
If you just sat in a S&P 500 index fund, you did well. But the real winners were in weird places.
- Precious Metals: Gold was up 26%, and silver—get this—surged over 149%. Central banks were diversifying like crazy, and industrial demand for silver in electronics and solar panels went through the roof.
- Emerging Markets: While everyone was obsessed with the US, EM stocks (especially Korea and parts of LATAM) returned over 30% in dollar terms.
- Financials: Banks like Goldman Sachs and Morgan Stanley ended the year at record highs. Higher-for-longer rates helped their margins, and a late-year surge in M&A activity (mergers and acquisitions) brought in massive fees.
Lessons for the Road Ahead
Looking back at 2025, the biggest takeaway is that "the obvious trade" is usually a trap. At the start of the year, everyone thought small caps would finally have their day because of rate cuts. They didn't. They actually declined 0.6% in December while the rest of the world rallied.
The market is currently pricing in a lot of "perfection" for 2026. Analysts are expecting another 15% earnings growth. If companies miss that—even by a little—those high 21x multiples are going to feel very heavy.
Actionable Next Steps for Your Portfolio:
- Check your concentration: If you’re still 90% in US tech, you’re ignoring the fact that international markets and "Old Economy" sectors like utilities are actually showing better value right now.
- Watch the 10-Year Treasury: If yields head back toward 5%, stocks will likely see a repeat of the April 2025 "wobble." That’s your signal to either hedge or have cash ready.
- Don't ignore the "AI Laggards": Look for companies that are using AI to cut costs rather than just the ones selling the chips. The "catch-up" trade is where the next leg of growth is likely hiding.
- Rebalance into Commodities: With silver and gold proving their worth as a hedge against policy uncertainty, having a 5-10% slice in "real stuff" isn't a bad idea anymore.
2025 proved that the economy can "bend but not break." As we move deeper into 2026, the focus has shifted from surviving the Fed to watching the bottom line of every individual company you own.