The past year was eventful, to say the least. Before turning the page to 2026 it is worth reflecting on a few key events and themes that drove narratives and impacted markets in 2025. Inauguration day, what with DOGE and a flurry of Executive Orders “the likes of which we have never seen,” was nothing if not entertaining. “Liberation Day” shocked markets, but only briefly as the President quickly hit the pause button, followed by months of Trump dancing the tariff Do-si-do. There were “deals” with China, Japan, the EU and others, not to mention the back-and-forth haggling with our neighbors Canada and Mexico. Most were just negotiated “frameworks” with details to be worked out later and just two official Trade Agreements finalized. One casualty of the new administration’s policies was the US dollar, which lost -8% of its value relative to the global currency basket[1].
Keeping with geopolitics, from Israel and Iran, Russia and Ukraine, to China and Taiwan, and now Venezuela, it is easy to blame Trump for the endless political/economic/military tensions we see around the globe. But tariffs aside, all these conflagrations were simmering prior to Trump’s latest election win. He just lifted the lid, exposing the building steam. Throughout all the chaos and noise, global investors remained upbeat. Financial markets performed well nearly everywhere, with asset returns showing broad strength, especially precious metals and non-US equities.
Of course, much of the enthusiasm was driven by the big theme of the year, Artificial Intelligence (AI). From semiconductors to software “agents,” data centers to energy and the grid infrastructure, AI dominated the financial headlines. Construction of the AI edifice and all the supporting scaffolding is expected to be a key driver of economic growth for years to come. Two big questions emerged towards the end of the year that are likely to play out further in 2026. One is the strain on the electric grid that massive data center buildouts are creating and, more importantly, rising electricity rates. Second is the issue of financing the projected trillions of dollars of investment required and what impact that will have on corporate balance sheets and the bond market.
Despite widespread concerns, the inflationary impact of tariffs has yet to materialize. In fact, inflation continued to ease, helped by slowing services prices, though the Core PCE Index remains above the Federal Reserve’s long-held target of 2%[1]. A record long government shutdown in October and November accomplished nothing much other than starving the government of financial data and financial markets of official economic reports. Amidst a backdrop of limited data, the Fed nonetheless followed September’s 25 basis point cut with two more cuts before year-end to a lower bound of 3.50%[1]. Then third quarter GDP was reported at +4.3% annualized, way above estimates, so the Fed could be on hold until Trump appoints “his guy.”[1] Despite the improving rate environment, real estate was a notable laggard among assets in 2025 with a total return of less than 3%, underperforming bonds[1].
Supported by the inflation and employment backdrop and expectations (fulfilled) for rate cuts, fixed income assets enjoyed a solid year despite a flattish December. The Bloomberg Catholic US Aggregate Bond Index produced a total return of 7.27% in 2025 and the Short-Term (1-3 year) index returned 5.34%[1]. The US 10-Year treasury note fell -40 basis points on the year, with the index returning 6.32% and ending 2025 with a yield of 4.17% after ticking higher in December[1]. Investment grade corporates were helped by a tightening spread which, at 27 basis points, was the lowest since the late 1990’s[1]. While there is little doubt that the job market has softened, a key citation by the Fed for cutting rates, the final data points of the year suggest that employment is hardly collapsing. The “no-hire-no-fire” backdrop points to a soft but stable labor market.
Some investors may feel disappointed in how the equity market finished the year. Generally defined as the period post-Thanksgiving through December 31st, the “Santa Claus Rally” has produced positive returns in 15 out of the last 20 years (75%)[1]. This year’s 0.60% return was below the 20-year average of 1.1% due to the final few days of low-volume, lackluster performance as the S&P 500 Index drifted lower[1]. Still, the widely followed benchmark did hit a new all-time closing high on Christmas Eve. It returned 17.86% in calendar 2025, the third consecutive year of at least a 15% total return[1]. While consecutive years of double-digit returns are not uncommon, the S&P 500 Index has returned 15% or more in three consecutive years only four times prior, including immediately preceding the 2000 Tech Bubble crash. Make of that what you will.
The Bloomberg Catholic Values equity indexes posted strong returns in 2025, despite a soft December. Non-US equities were the biggest winners for the year, but US small cap stocks mounted a serious rebound beginning the week before Thanksgiving, joining the large cap indexes with double-digit gains. Catholic Index total returns, in USD, were as follows (December/2025): 1000 (-0.05% / 18.23%), 1000 Growth (-0.47% / 18.97%), 1000 Value (1.28% / 16.13%), 2000 (-0.20% / 10.05%), WORLD-XUS (3.20% / 32.65)[1].
The ferocious advance in precious metals might be the most overlooked story of the year. Gold jumped 65%[1]. But silver exploded in 2025, up 148% including a 27% surge in December[1]. There are several reasons behind the ascendance of precious metals, but the simple explanation is a supply/demand tipping point. Limited supply has been the case for some time due to costly production and limited mine output growth. Gold is primarily a monetary metal and is a proven store of value. Central banks have been big buyers of gold in recent years, likely to hedge against currency debasement given the global acceleration of sovereign debt issuance. Similarly, investors are looking to protect purchasing power and are grossly underweight precious metals in terms of portfolio allocations. As an industrial metal, silver has been in deficit for years and should remain so in the near term. But silver is also a secondary monetary metal and is more accessible to investors given its much lower unit price versus gold.
My end-of-year sample of opinions from various investment sources shows that economists --a group with an unenviable track record of forecasts-- are sanguine about the outlook for the new year, which does not seem unreasonable. Similarly, market strategists are unanimous that another year of solid gains for earnings and equities is in store despite challenging valuations. It is noteworthy that the Wall Street consensus for the S&P 500 in 2026 (year-end target of 7650, +11%) equates to a fourth consecutive year of double-digit performance, a milestone the benchmark has never reached since inception in 1958. With critical Supreme Court opinions pending, a new tax regime in place, a changing of the guard at the Federal Reserve, no finish line in sight for Ukraine, mounting tensions elsewhere and US midterm elections looming, 2026 should prove every bit as eventful as 2025.
[1] Source: Bloomberg
