2025 was a strong year for disciplined investors, with equities delivering impressive gains despite concerns about inflation, interest rates, and geopolitics. The S&P 500 rose about 16%, and the Dow gained 13%. Bonds also contributed positively, with taxable bonds returning 7% and municipal bonds 5%, while cash significantly underperformed.
The primary driver of market strength was corporate earnings growth, which accelerated from 1.4% in 2023 to 11% in 2025. Analysts project 14% growth for 2026, supporting continued expansion if recession is avoided. Inflation cooled to 2.6%, and unemployment remains healthy at 4.6%, reducing recession risk.
Fixed income remains constructive for 2026, with potential rate cuts likely to support bond prices. While volatility is expected, the bull market remains intact, and history shows investing at market highs often yields strong returns.
Key themes for 2026:
- Continued economic expansion, no recession expected
- Volatility is normal and should be planned for
- Maintain diversified portfolios and long-term discipline
Bottom Line: Staying invested, managing risk, and focusing on fundamentals—not headlines—remains the best path to long-term success.