The year 2025 proved to be a "scary good" one for investors, marked by dramatic market swings but ultimately delivering substantial returns. The U.S. stock market experienced several historic plunges, fueled by anxieties over President Donald Trump’s tariffs, fluctuating interest rates, and concerns about a potential bubble in artificial-intelligence technology. Despite these challenging periods, investors who maintained their positions saw significant gains. By December 11, S&P 500 index funds, which are central to many 401(k) accounts, had returned more than 18% and reached a new record high, marking their third consecutive year of strong performance.

A major surprise that shaped financial markets was the introduction of new tariffs. In April, President Trump announced a sweeping set of tariffs that were more severe than anticipated, sparking immediate fears of a possible recession and spiraling inflation. This led to the S&P 500 plunging nearly 5% on April 3, marking its worst day since the 2020 COVID-19 crash, followed by another 6% drop the next day amidst fears of a tit-for-tat trade war with China. The tariffs' impact extended beyond stocks, causing the U.S. dollar to fall and shaking the perceived safety of the U.S. Treasury market. However, Trump paused the tariffs on April 9 after noting the U.S. bond market's "queasiness," which brought a wave of relief to Wall Street. Subsequently, Trump negotiated agreements with various countries to lower proposed tariff rates, further calming investor nerves. Nevertheless, trade worries remained a volatile factor, as evidenced by stocks spiraling again in October following renewed threats of higher tariffs on China.

Another significant and surprising development involved President Trump's direct and personal lobbying for the Federal Reserve to lower interest rates. The Fed has traditionally maintained independence from political influence, making interest rate decisions based solely on economic health, even if unpopular. While high interest rates can slow the economy and displease politicians, they can also be crucial for controlling inflation. As inflation stubbornly stayed above the Fed's 2% target, the central bank kept rates steady through August, much to Trump's displeasure, particularly as his own trade policies were contributing to inflation fears. Trump frequently criticized Fed Chair Jerome Powell, even nicknaming him "Too Late." Their strained relationship escalated in July when Trump publicly accused Powell of mismanaging the costs of a Federal Reserve headquarters renovation. Although Wall Street generally favors lower rates, these personal attacks created unease in financial markets due to concerns about a potentially less independent Fed. With Powell's term as Fed chair set to expire in May, there is a widespread expectation that Trump will select a replacement more inclined to cut rates.

Amidst these tensions, Wall Street experienced a remarkably calm summer, buoyed by widespread enthusiasm for artificial-intelligence technology and robust profit reports from corporations. The market also received a boost from three interest rate cuts implemented by the Federal Reserve, contributing to the overall positive sentiment despite earlier volatility.

Interestingly, the "America first" ethos did not translate to global market performance, as many foreign markets outperformed their U.S. counterparts. South Korea's KOSPI index, a major technology hub, saw its biggest gain in over two decades in 2025, propelled by AI investments in companies like Samsung and SK Hynix. Japan's Nikkei 225 achieved a double-digit gain for the third consecutive year, driven by the focus on AI and technology, alongside a $135 billion stimulus package announced after national elections in October and November. European markets also had a strong year; Germany's DAX benefited from government plans to increase spending on infrastructure and defense, while the European Central Bank's interest rate cuts in the first half of the year provided a boost across the continent. France's CAC 40 was a relative laggard, up 10% by mid-December.

Cryptocurrencies, known for their volatility, still managed to surprise market watchers in 2025. Bitcoin initially dropped alongside other riskier assets early in the year due to Trump’s trade policies. However, it roared back as the White House and Congress threw their support behind digital assets, and the Trump family even launched several crypto ventures. Retail investors eagerly participated, pouring money into Bitcoin ETFs, which allowed them to profit from price surges without direct ownership of the cryptocurrency. Companies like Strategy Inc. centered their business on buying and holding crypto, seeing their stock prices jump. Bitcoin itself hit a high of around $125,000 in early October. Yet, almost as swiftly, digital assets tanked as investors grew concerned that prices for high-flying assets like tech stocks and crypto had become excessively inflated. By mid-December, Bitcoin traded around $89,400, down approximately 28% from its peak and 4% below its starting point for the year.

Looking ahead to 2026, many professional investors anticipate continued gains, largely expecting the economy to advance steadily and avoid a recession. This projected stability should support profit growth for U.S. companies, which historically correlates with long-term stock prices. Analysts, according to FactSet, forecast a 14.5% rise in earnings per share for S&P 500 companies in 2026, an acceleration from the estimated 12.1% growth in 2025.

However, some concerns from 2025 are expected to persist. A primary worry is whether the extensive investments in artificial-intelligence technology will ultimately generate sufficient profits and productivity to justify their valuations. This concern could maintain pressure on key AI stocks such as Nvidia and Broadcom, which were significant drivers of market gains in 2025. Critics also argue that stocks across the broader market remain expensive, having seen their prices climb faster than corporate profits. Consequently, strategists at Vanguard estimate that U.S. stocks may yield only about 3.5% to 5.5% in annualized returns over the next decade. Furthermore, Bank of America strategist Savita Subramanian predicts that the S&P 500 could rise by less than half the rate of profit growth in 2026, potentially due to companies reducing stock buybacks and global central banks implementing fewer interest rate cuts.