2025 Market Review: A Year of Transformation, Turbulence, and Timeless Principles
January 2026
Dear Clients and Friends,
Some years feel like turning the pages of a dense history book. Others feel like riding a roller coaster where you’re not entirely sure which direction is up. 2025 was both.
Headlines swung from breakthrough to brinkmanship: AI breakthroughs, revived tariffs, rate cuts, geopolitical crises, and markets that somehow found ways to scale walls of worry. It reminded us of a truth we repeat often: The world is noisy, but markets are surprisingly good listeners.
As we look back, three themes stand out: transformation, uncertainty, and humility.
AI: The Rising Tide You Can’t Outrun
No force shaped sentiment in 2025 more than artificial intelligence. It fueled extraordinary investment in AI infrastructure, helped transform business models across nearly every sector, and kept U.S. mega‑cap technology leaders firmly in the spotlight. The “Magnificent Seven” continued to dominate headlines and index weightings. These few large tech companies now represent an unusually large share of total U.S. equity capitalization, a concentration that pushes valuations into “priced for perfection” territory. However, while high valuations are a headwind and cautionary sign, we have seen companies continue to perform well during periods of rapid change.
I’m reminded of when Amazon was a bookseller and grew into an e-commerce behemoth, or when Netflix was a DVD-by-mail rental service and now is a global streaming powerhouse. It’s hard to imagine the future before it happens. Which of these companies will transform into these market leaders, and which will be disrupted or mired by expectations that are too high? We want to continue to have exposure to these types of companies, but not put all our eggs in one basket, as early leadership doesn’t guarantee success.
U.S. Large Companies (S&P 500 Index) was up 17.9%, and U.S. Small Companies (Russell 2000 Index) returned 12.8% for the year, based on year-end figures.
Policy Surprises: Tariffs Return, Inflation Moderates, Rate Cuts Arrive
2025 revived broad‑based tariffs, a rarely used tool. These measures reverberated globally. Despite this, inflation continued moderating, and the Federal Reserve delivered meaningful rate cuts, a step toward restoring balance and moving away from restrictive posture. The global nature of the economy is complex, which is why it is so hard to predict. Many economists and TV commentators share simple examples where one factor directly impacts another. The reality is, many factors exist, and when one is moved, many adjustments occur, not just one simple one. The result is that the global economy can be more resilient and adaptive than some expect, but it also makes it hard to end up with the intended result. Bond returns are heavily correlated with inflation data and Fed interest rate policy.
The U.S. Bond index (Bloomberg U.S. Aggregate Bond Index) returned 7.3%, based on year-end numbers.
Geopolitics: A Stress Test for Sentiment, Not Strategy
From wars to the covert dismantling of Iran’s nuclear capabilities, geopolitical uncertainty was and remains constant. But for investors, these events are weather, not climate. They can shape sentiment for risk-taking, but unless there is a direct tie to a company, history shows that geopolitical events rarely dictate long-term investment outcomes. As humans, we can be moved by these events, but as investors, we must remain disciplined.
Surprise Winner: Overseas Companies Took the Lead
Despite all the attention on U.S. tech giants, the strongest returns came from companies overseas and, even more surprisingly, from emerging market companies. It’s like spending the entire game watching the star quarterback only to realize the running back made the biggest contribution to the game. Almost no market forecasters predicted this, and it’s a reminder that markets reward preparation and patience, not predictions.
International stocks (MSCI EAFE Index) returned 31.2%, and Emerging (MSCI Emerging Markets Index) returned 33.4%, based on year-end numbers.
Alternative Investments: Expanding the Toolkit
Interest in alternative investments continues to grow among some in the media and across the industry. Many are drawn to their cache, elite managers, or perceived sophistication. At Savant, however, we remain committed to evaluating them the same way we assess any investment: on their underlying merits. Our goal is to thoughtfully curate a mix of alternative strategies that has potential to bring meaningful diversification to portfolios.
Reinsurance (SwissRE Global Cat Bond) returned 11.4%, Direct Lending (Cliffwater Direct Lending) returned 8.6%, and Multi-strategy (combination of Credit Suisse Multi-strategy and Wilshire Liquid Alt Multi-strategy indexes) returned 4.0%, based on year-end numbers.
A Strong Year for Evidence‑Based Investors
While we will never spike the football and prefer to remain humble about investing outcomes, it should be noted that 2025 was a good year for evidence-based investing. The key principles that we believe are timeless, but proved especially timely this year, are:
1. Markets Work. Markets process information far faster than the so-called experts. Tariff volatility was a key time to sit tight this year.
2. Diversification Matters. The overlooked parts of the market led the way, despite almost zero headlines about emerging market or international companies.
3. Focus on Controllables. Tax efficiency, costs, rebalancing, and discipline drive long‑term success.
Looking Toward 2026 Armed with a Plan
We head into 2026 not with a prediction, but with a plan. To have a portfolio tied to goals and objectives that is robustly diversified, and a disciplined approach of how to respond when things change, helps provide a strong foundation. We hope it provides the same to you. Innovation will expand, and the global economy will continue to change, as it has for decades, and we remain committed to learning, adapting, and applying that knowledge to portfolios. As always, we are deeply grateful for your partnership.
Here’s to a prosperous New Year!
Historical performance results for investment indices, benchmarks, and/or categories have been provided for general informational/comparison purposes only, and generally do not reflect the deduction of transaction and/or custodial charges, the deduction of an investment management fee, nor the impact of taxes, the incurrence of which would have the effect of decreasing historical performance results. It should not be assumed that your account holdings correspond directly to any comparative indices or categories.
C. Zach Ivey
Chief Investment Officer
CFA®, CFP®, MBA