2025, the year of the Wood Snake, has ended; 2026 brings the Fire Horse, a symbol of freedom, independence, and courage that appears only once every 60 years.
Let’s review 2025. Interestingly, the Wood Snake is known for deep thinking and the color green; along those lines, 2025 was all about artificial intelligence keeping the economy and the stock market in the green. Companies poured huge amounts of money into building new data centers, sometimes in deals that seemed circular. Early in the year, on January 27, DeepSeek showed up and caused a bit of panic—NVIDIA’s stock took a 17% hit. Why? Because DeepSeek’s large language model was much cheaper to run and required less power. Crypto also went wild posting new highs, but only briefly before pulling back.
Pop culture did not disappoint in 2025. K-Pop demon hunters were everywhere, and Labubu’s became a thing. A big scandal broke out when a CEO and the head of HR were broadcast together on the Kiss Cam at a Coldplay concert, and both ended up losing their jobs. There was a lot of buzz about the “fedora man” after the Louvre was robbed, and people kept saying “6-7,” which was annoying.
Penguins on the Heard Islands got hit with new tariffs, many have since fled. On the bright side, Katy Perry made news by blasting off into space—check that, the edge of space. We had the longest government shutdown ever, which messed things up for a while. By the end of the year, Netflix and Warner Brothers were gearing up for a huge deal in the media world with David Ellison’s dad trying to thwart it.
Stock Market
The year 2025 was marked by volatility and notable milestones in the global stock markets. Major indices such as the S&P 500 and Nasdaq reached new all-time highs, driven by strong earnings reports from technology and communication services sectors. However, the market also experienced several pullbacks most notably the April 2nd tariff “liberation day.”
Investors saw increased market rotation as value stocks gained ground in the first half of the year, while growth stocks regained leadership towards year end. Key events, such as the Federal Reserve’s approach to interest rates and the reversal of tariffs, contributed to renewed investor confidence. Despite intermittent volatility, the overall market performance reflected resilience and adaptability, closing the year with gains across sectors.
Markets in 2025 underscored the importance of diversification and a long-term investment perspective when investing. As we finally saw, international stocks performed impressively, even besting many US sectors.
Bonds
The bond markets in 2025 watched as central banks in major economies continued to navigate the delicate balance between controlling inflation and supporting growth, leading to periods of both rising and falling yields. Notably, the U.S. Federal Reserve maintained a cautious stance, resulting in fluctuating Treasury yields as market participants reacted to mixed signals regarding future rate movements. Based on the dot plot, the outcome of rate reductions in 2026 looks a bit murky.
High yield and world bonds took the lead for 2025, but most sectors of the bond market had relatively impressive returns.
Focusing on precious metals, gold and silver reaffirmed their roles as safe-haven assets during periods of uncertainty. Over the past year, gold was up approximately 65%, driven by surging investor and central bank demand. Silver posted a return of around 150%, buoyed by industrial demand (EVs and AI) and economic uncertainty.
What Will 2026 Look Like?
The market entered 2026 on strong footing. The economy has shed some jobs, but employment remains strong. Inflation is still currently in check. The Congressional Budget Office estimates that The One Big Beautiful Bill will boost GDP growth by 0.9% in 2026. And don’t forget (I know you won’t) we have midterms elections with the Republicans forecasted to lose the House, so anticipate a lot of programs and spending.
The question for investors in 2026 is where AI spending will land, and whether the AI- and tech-themed surge in markets will continue. The market started the year with what seems to be a rotation in the S&P 500 from the top 7 to the other 493. If history is any indication, markets are usually flat in the second term of presidential cycle, but last year far exceeded expectations, which could be good or bad. But AI spending is at least estimated to continue to rise. Globally, fiscal growth looks positive, and the old faithful consumers have continued to spend.
We would be remiss not to mention the situation in Venezuela. What does this mean for oil and investors? Venezuela produces only 1% of the total oil demand, down from their high of 3%. They have old, rusted and depleted resources that will take billions of dollars to get fixed. Also, the oil is akin to coffee grounds as opposed US shale being like champagne. There is timing, it will take many years for this to be completed and any company thinking about entering will need to look out for 10 years at least. That could be two more administrations, not an enticing outlook. Chevron is the only US major in Venezuela as Conoco and Exxon had their assets nationalized. So, barring government backing, we do not anticipate much hunger. Also, according to Torsten Slok at Apollo, the reserves may be BS.
As investors begin to expect results from all the AI spending, we could see fractures in the market if all the spending is leading to nothing. We are happy to see sectors benefiting from AI start to move, but with such a large percentage of the S&P 500 held by 10 companies, if they sneeze, we are all getting sick. The economy as it currently stands, combined with continued spending in AI and tech, does bode well for markets. As Peter Lynch once said, “far more money has been lost by investors trying to anticipate corrections, than lost in the corrections themselves.” That is the beauty of diversification and rebalancing a portfolio. It is tough to trim areas that are doing well, but it works in the long run.
We wish you a great 2026 and look forward to speaking with you.
Post Script
Hopefully you received our recent holiday card. You may notice we continue to expand. I wanted to take the time to introduce our latest team member, Chase Eagan. Chase sent Andrew, Joe and I an unsolicited email looking to leave Buffalo, New York (Go Bills!) and come to sunny California. We took the bait and flew him out….and now he is an Associate Advisor for the three of us. You may see him in meetings, on a call or even receive an email from him. In his prior life, he was a professional soccer player in the Netherlands,and employed by a boutique investment firm in Orchard Park, NY. Chase holds a Bachelor of Science in Finance and Data Analytics from the University of Buffalo and an MBA in Securities Analysis from Canisius University (Go Golden Griffins!)
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