Listen to the article
U.S. markets weathered a year of dramatic swings to deliver impressive returns in 2025, despite several historic plunges triggered by trade tensions, interest rate uncertainties, and concerns about overvaluation in the artificial intelligence sector.
S&P 500 index funds, which form the backbone of many Americans’ retirement accounts, returned more than 18% through December 11, setting a new record high and marking the third consecutive year of substantial gains.
The year’s most significant market disruption came on what became known as “Liberation Day” in April, when President Donald Trump announced sweeping tariffs that exceeded investor expectations. Fears of recession and inflation sent the S&P 500 plummeting nearly 5% on April 3—its worst single-day performance since the 2020 COVID crash. Markets fell an additional 6% the following day after China’s retaliatory measures raised concerns about an escalating trade war.
The tariff announcement’s impact extended beyond equities, weakening the U.S. dollar and creating unusual volatility in Treasury markets, typically considered among the world’s safest investments. Responding to this market turbulence, Trump paused his tariff plans on April 9, acknowledging the “queasy” bond market. He subsequently negotiated reduced tariff rates with various countries, helping to stabilize investor sentiment.
Wall Street then enjoyed a remarkably calm summer rally, buoyed by enthusiasm surrounding artificial intelligence technologies, strong corporate earnings, and three interest rate cuts by the Federal Reserve. However, trade concerns remained a persistent threat, as demonstrated in October when renewed tariff threats against China triggered another market downturn.
The relationship between Trump and the Federal Reserve provided another unexpected storyline. Breaking with the tradition of central bank independence, Trump aggressively and personally lobbied for lower interest rates. As inflation remained stubbornly above the Fed’s 2% target through August, the president repeatedly criticized Fed Chair Jerome Powell, even giving him the unflattering nickname “Too Late.”
The tension peaked in July when Trump publicly accused Powell of mismanaging renovation costs at the Fed’s headquarters, with Powell visibly shaking his head in response. While Wall Street generally favors lower rates, the personal attacks raised concerns about the Fed’s autonomy. With Powell’s term set to expire in May, market participants widely expect Trump to appoint a successor more inclined to implement rate cuts.
Despite the strong performance of U.S. markets, several international markets delivered even better returns, challenging Trump’s “America first” economic narrative. South Korea’s KOSPI experienced its largest gain in over two decades, driven by the global AI boom that benefited technology giants like Samsung and SK Hynix.
Japan’s Nikkei 225 achieved a third consecutive year of double-digit returns, bolstered by both the technology sector’s strength and a $135 billion stimulus package announced following national elections in late 2025. European markets also performed well, with Germany’s DAX rising on increased infrastructure and defense spending. France’s CAC 40 lagged somewhat but still posted a respectable 10% gain by mid-December.
Cryptocurrencies maintained their reputation for volatility. Bitcoin initially declined alongside traditional risk assets during the early-year tariff scare but later surged as the White House and Congress expressed support for digital assets. The Trump family’s entrance into various crypto ventures further boosted the sector, while retail investors poured money into bitcoin ETFs.
Bitcoin reached approximately $125,000 in early October before plummeting amid concerns that tech and crypto valuations had become excessive. By mid-December, it traded around $89,400—down 28% from its peak and 4% below its starting point for the year.
Looking ahead to 2026, many professional investors remain cautiously optimistic. With the economy expected to avoid recession, S&P 500 companies are projected to increase earnings per share by 14.5%, according to FactSet—an acceleration from 2025’s estimated 12.1% growth.
Nevertheless, concerns persist about artificial intelligence investments potentially failing to generate sufficient profits and productivity gains to justify their valuations. This could pressure AI-focused companies like Nvidia and Broadcom, which drove substantial market gains in 2025.
Broader valuation concerns also loom large, with Vanguard strategists projecting more modest annualized returns of 3.5% to 5.5% for U.S. stocks over the next decade. Bank of America analyst Savita Subramanian suggests 2026 may see the S&P 500 rise by less than half the rate of profit growth, potentially due to reduced stock buybacks and fewer rate cuts by global central banks.
Fact Checker
Verify the accuracy of this article using The Disinformation Commission analysis and real-time sources.
8 Comments
I’m curious to see how the markets will fare if the Fed and Trump continue to clash over monetary policy. Sounds like a recipe for more volatility ahead.
Definitely a risk factor to keep an eye on. The Fed’s independence is crucial for maintaining stability, so that dynamic bears watching.
Interesting to see how the markets weathered the turbulence from Trump’s trade war and Fed policies. Glad to hear U.S. stocks had a strong year overall despite the volatility.
Yes, it’s impressive the markets were able to bounce back and set new highs. Speaks to the overall resilience of the U.S. economy.
Glad to see the US economy and markets proving resilient in the face of trade tensions and political headwinds. Speaks well to the underlying fundamentals.
18% returns for S&P 500 funds is very solid, especially after a few turbulent years. Shows the strength of the U.S. equity markets despite the political and policy uncertainty.
The ‘Liberation Day’ tariff announcement sounds like it really shook up the markets for a while there. Curious to see how the long-term impacts played out, especially for the dollar and Treasuries.
Agreed, the volatility in those other asset classes is a bit concerning. Will be interesting to monitor how the trade tensions continue to reverberate.