US stock markets are closing out 2025 with strong gains, positioning investors for 2026 after a volatile year marked by trade tensions, rapid advances in artificial intelligence, and renewed uncertainty over monetary policy.
After a turbulent spring triggered by global tariffs announced by Donald Trump, US equities rebounded sharply by summer, supported by strong corporate earnings and sustained investor confidence in AI-related spending. The S&P 500 is on track to finish the year up about 17%, marking a third straight year of double-digit gains.
Market Performance After Tariff Shock
In early April, Trump’s announcement of sweeping tariffs on major US trading partners sent markets sharply lower. The S&P 500 fell close to bear market territory, defined on Wall Street as a decline of 20% from a recent peak. The Nasdaq Composite and the Russell 2000 briefly entered bear markets during the sell-off.
Markets recovered after the administration scaled back its most aggressive tariff measures, easing concerns about a tariff-driven slowdown. Since then, major indexes have climbed to fresh highs.
The Nasdaq Composite is poised to end the year up about 21%, while the Russell 2000 has gained roughly 12% year to date.
Earnings And Investor Sentiment
Despite lingering concerns about the economy, equity markets continued to advance. Robert Edwards, chief investment officer at Edwards Asset Management, said markets have continued to rise despite persistent uncertainty.
“The market continues to climb the wall of worry into next year,” Edwards wrote, adding that 2026 could bring further record levels, supported in part by expectations of lower borrowing costs.
Strong earnings growth across corporate America has been a central driver of the rally since the spring volatility, according to Parag Thatte, an equity strategist at Deutsche Bank.
AI Concentration And Valuation Concerns
Investor enthusiasm around AI spending has helped several technology firms outperform the broader market. Nvidia, Apple, Microsoft, Amazon, and Alphabet together account for nearly 30% of the S&P 500’s total weight.
At the same time, concerns have grown that AI-related stocks may be overvalued after sharp price increases and sustained capital spending by technology companies. Analysts note that recent earnings growth has broadened beyond the largest technology firms.
Thatte said average-sized companies saw improving growth in the third quarter of 2025, describing the trend as an important shift as investors rotate away from large-cap technology stocks.
“The rotation is already happening,” he said, adding that market movements may be uneven.
Safe Havens And Alternative Assets
Geopolitical tensions, tariff uncertainty, and expectations of interest rate cuts also boosted demand for safe-haven assets in 2025. Gold prices are on track for a nearly 70% annual increase.
Bitcoin, by contrast, is set to end the year slightly lower. The cryptocurrency rose earlier in the year following support for digital assets from the Trump administration, but later retreated from record highs reached in October.
Economic Signals And Policy Risks
The US economy showed resilience in 2025. Gross domestic product expanded at an annual rate of 4.3% in the three months to September, up from 3.8% in the prior quarter, according to government data. David Sekera, chief US market strategist at Morningstar, said economic growth exceeded many expectations.
At the same time, warning signs remain. The US unemployment rate rose to 4.6% in November, a four-year high, up from 4.4% in September, according to Labor Department figures. Analysts at Charles Schwab said policy risks remain elevated, lowering the threshold for a market pullback early in 2026.
Trade negotiations between Washington and major partners are expected to continue generating headlines, Sekera said.
Federal Reserve Leadership Uncertainty
Another focal point for investors is the upcoming leadership change at the US central bank. Trump is expected to name a new Federal Reserve chair to replace Jerome Powell when his term ends in May.
Paul Stanley, chief investment officer at Granite Bay Wealth Management, described the decision as a major uncertainty for markets. Trump has said he plans to appoint a chair who supports lower interest rates, increasing scrutiny of future monetary policy.
“Fed chair transitions come with volatility,” Stanley wrote, as investors assess how policy direction may shift in the months ahead.
Featured image credits: Wikimedia Commons
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