Equities
The S&P 500 returned 17.9% in 2025 and ended the year just off an all-time high, capping a 37% recovery from the April lows as the economy and corporate profits proved far more resilient than markets feared from tariffs and geopolitical events. Exuberance of the prospects for Artificial Intelligence was a key aspect of the recovery as well, though fears around an “AI bubble” continue to linger, and lofty valuations for the market remain a concern. The Fed delivered three cuts, one more than their own prediction at the start of the year, in response to a weak labor market and poor consumer sentiment, even as inflation hovered well above their 2% target. Mid cap (+10.6%) and small cap (+12.8%) stocks underperformed large caps but posted solid returns. All sectors in the S&P 500 posted positive returns in 2025; communication services (+33.6%) and information technology (+24%) were the clear market leaders, while real estate (+3.1%) and consumer staples (+3.9%) were the laggards. International markets fared even better than the U.S., aided by a falling dollar and lower starting valuations. EAFE markets returned +31.2% with broad-based gains in Europe (+35.4%), the U.K. (+33.6%) and Japan (+24.6%), while EM markets returned +33.6% in 2025, led by a stunning recovery in Korea (+99.8%), Brazil (+49.7%) and China (+31.2). India (+2.6%) was the only major market to miss the party.
From a valuation perspective, the S&P 500, NASDAQ, EAFE and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.8, NASDAQ at +1.2, EAFE at +1.1 and EM at +1.1. For the next 12 months, EPS growth for S&P 500 is expected to be 11.3% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 21.2% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had positive returns as rates fell across the curve, except at the very long end. In 2025, municipals returned +5.9% after a choppy start to the year, US AGG (investment grade) returned +7.3% and US IG returned +7.8%. HY bonds returned +8.6% as spreads compressed 21bps while bank loans returned +9.9%. EM debt returned +13.6% even as the U.S. dollar fell 9.4% as spreads compressed 73bps.
Rates
Rates fell across the curve except at the very long end. The Fed cut rates three times in 2025. The recession-watch 3M-10Y spread widened 29bps in 2025 to +53, while the 2Y-10Y spread widened 36bps to +69. Rates rose in Japan and Europe, though fell slightly in the U.K. The Italian BTP-German Bund spread is at 0.70%. 5-year breakeven inflation expectations fell 12bps in 2025 to 2.27% (vs. low of 1.88% on Sept 10, 2024); 10-year breakeven inflation expectations fell 9bps in 2025 to 2.25% (vs. recent low of 2.03% on Sept 10, 2024); the 10Y real yield fell 33bps in 2025 to 1.90%. For 2026, the market expects between 2 and 3 cuts vs. the Fed’s guidance of 1 cut. At year-end 2025, the market expects the Fed Funds rate to be 3.04% vs. the Fed’s guidance of 3.25%-3.5%.
Currencies/Commodities
The dollar index fell 9.4% in 2025, its worst performance in nearly a decade. The commodities complex rose 7.1% even as energy prices fell 5.1% in 2025, as precious metals led by gold (+64.6%) and industrial metals (29.4%), led by copper (+41.1%), drove returns. Brent prices fell 18.5% in 2025 to $61/bbl; US natural gas prices rose 1.5% while European gas fell 34.7%.
Market monitors
Volatility fell for equities and for bonds (VIX = 15, MOVE = 64); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (to end 2025) remained positive at +3.
Weekly Commentary
2025 Market Recap: Strong Returns Across Assets, Elevated Valuations, and Falling Rates Set the Stage for 2026
Stuart Katz
Equities
The S&P 500 returned 17.9% in 2025 and ended the year just off an all-time high, capping a 37% recovery from the April lows as the economy and corporate profits proved far more resilient than markets feared from tariffs and geopolitical events. Exuberance of the prospects for Artificial Intelligence was a key aspect of the recovery as well, though fears around an “AI bubble” continue to linger, and lofty valuations for the market remain a concern. The Fed delivered three cuts, one more than their own prediction at the start of the year, in response to a weak labor market and poor consumer sentiment, even as inflation hovered well above their 2% target. Mid cap (+10.6%) and small cap (+12.8%) stocks underperformed large caps but posted solid returns. All sectors in the S&P 500 posted positive returns in 2025; communication services (+33.6%) and information technology (+24%) were the clear market leaders, while real estate (+3.1%) and consumer staples (+3.9%) were the laggards. International markets fared even better than the U.S., aided by a falling dollar and lower starting valuations. EAFE markets returned +31.2% with broad-based gains in Europe (+35.4%), the U.K. (+33.6%) and Japan (+24.6%), while EM markets returned +33.6% in 2025, led by a stunning recovery in Korea (+99.8%), Brazil (+49.7%) and China (+31.2). India (+2.6%) was the only major market to miss the party.
From a valuation perspective, the S&P 500, NASDAQ, EAFE and EM trade at or above +1 standard deviation based on historical forward P/E ratios with the S&P 500 at +1.8, NASDAQ at +1.2, EAFE at +1.1 and EM at +1.1. For the next 12 months, EPS growth for S&P 500 is expected to be 11.3% (vs. 6.9% annualized over the last 20 years). For the next 12 months, EPS growth for NASDAQ is expected to be 21.2% (vs. 10.7% annualized over the last 20 years). Equities across markets caps in the U.S., and in non-U.S. developed and emerging markets, trade at or above their 20-year averages based on forward P/E ratios.
Fixed Income
Investment grade fixed income sectors had positive returns as rates fell across the curve, except at the very long end. In 2025, municipals returned +5.9% after a choppy start to the year, US AGG (investment grade) returned +7.3% and US IG returned +7.8%. HY bonds returned +8.6% as spreads compressed 21bps while bank loans returned +9.9%. EM debt returned +13.6% even as the U.S. dollar fell 9.4% as spreads compressed 73bps.
Rates
Rates fell across the curve except at the very long end. The Fed cut rates three times in 2025. The recession-watch 3M-10Y spread widened 29bps in 2025 to +53, while the 2Y-10Y spread widened 36bps to +69. Rates rose in Japan and Europe, though fell slightly in the U.K. The Italian BTP-German Bund spread is at 0.70%. 5-year breakeven inflation expectations fell 12bps in 2025 to 2.27% (vs. low of 1.88% on Sept 10, 2024); 10-year breakeven inflation expectations fell 9bps in 2025 to 2.25% (vs. recent low of 2.03% on Sept 10, 2024); the 10Y real yield fell 33bps in 2025 to 1.90%. For 2026, the market expects between 2 and 3 cuts vs. the Fed’s guidance of 1 cut. At year-end 2025, the market expects the Fed Funds rate to be 3.04% vs. the Fed’s guidance of 3.25%-3.5%.
Currencies/Commodities
The dollar index fell 9.4% in 2025, its worst performance in nearly a decade. The commodities complex rose 7.1% even as energy prices fell 5.1% in 2025, as precious metals led by gold (+64.6%) and industrial metals (29.4%), led by copper (+41.1%), drove returns. Brent prices fell 18.5% in 2025 to $61/bbl; US natural gas prices rose 1.5% while European gas fell 34.7%.
Market monitors
Volatility fell for equities and for bonds (VIX = 15, MOVE = 64); the 10-year average for each is VIX=19, MOVE = 80. Market sentiment (to end 2025) remained positive at +3.
Disclosure and Source
Investment Commentary Sources: Bloomberg. Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. Registration does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. This material is for general informational purposes only and should not be construed as investment, tax or legal advice. It does not constitute a recommendation or offer to buy or sell any security, has not been tailored to the needs of any specific investor, and should not provide the basis for any investment decision. Please consult with your Advisor prior to making any Investment decisions. The information contained herein was carefully compiled from sources believed to be reliable, but Robertson Stephens cannot guarantee its accuracy or completeness. Information, views and opinions are current as of the date of this presentation, are based on the information available at the time, and are subject to change based on market and other conditions. Robertson Stephens assumes no duty to update this information. Unless otherwise noted, any individual opinions presented are those of the author and not necessarily those of Robertson Stephens. Indices are unmanaged and reflect the reinvestment of all income or dividends but do not reflect the deduction of any fees or expenses which would reduce returns. Past performance does not guarantee future results. Forward-looking performance targets or estimates are not guaranteed and may not be achieved. Investing entails risks, including possible loss of principal. Alternative investments are only available to qualified investors and are not suitable for all investors. Alternative investments include risks such as illiquidity, long time horizons, reduced transparency, and significant loss of principal. This material is an investment advisory publication intended for investment advisory clients and prospective clients only. Robertson Stephens only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of Robertson Stephens’ current written disclosure brochure filed with the SEC which discusses, among other things, Robertson Stephens’ business practices, services and fees, is available through the SEC’s website at: www.adviserinfo.sec.gov. © 2025 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere. A2897
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