Your Money, Your Update

A Quarterly Review of Investment Trends and Strategy From Our Investment Committee

Quarter 4, 2025

Join Sayer Martin, CFA, and John Burke, as they discuss major market happenings heading into the first quarter of 2026, including a market overview, stocks & bonds, gold & silver, and much more! They also offer perspectives on emerging market trends, technology/AI, crypto, and what else is to come in 2026.

*Filmed on January 6, 2026

Important Disclosures:

Investment advisory services are offered through Stone House Investment Management, LLC, an SEC-registered investment adviser. Registration with the SEC does not imply a certain level of skill or training. Investing involves risk, including the potential loss of principal. Past performance does not guarantee future results. Forward-looking statements reflect our current views as of the recording date and are subject to change. Indexes are unmanaged and cannot be invested in directly.

Q4 2025 & Year-End Review

Despite a roller-coaster year, global equities managed to hold their ground and then some. The fourth quarter of 2025 saw markets navigating euphoria and setbacks – from an AI-driven surge in October to tariff-related jitters and crypto volatility – yet ultimately closing out the year with strong gains. Many major asset classes saw gains for the year, as U.S. stocks notched a third straight year of double-digit growth, while overseas markets did even better. We’ll recap key market performance for Q4 and 2025 overall, and discuss the themes that defined the year: the value stock comeback, a strong bond market, AI hype and reality check, crypto’s progress, booming gold and silver, and a revival in international equities. Finally, we’ll share our cautiously optimistic outlook for 2026.

2025 Market Performance Overview

As of December 31, 2025, here’s a snapshot of performance for key asset classes:

U.S. Stocks: +17.8% (The S&P 500 Index hit record highs in December, marking its third consecutive year of double-digit advances.)

International Stocks: +32.5% (Aided by improving growth abroad, higher multiples, and a weaker U.S. dollar.)

U.S. Bonds: +7.2% (Falling interest rates drove price appreciation on top of healthy coupon income, giving bonds their best year since 2020.)

Gold: +64.7% (Its best year since 1979 – hitting a series of all-time highs amid strong safe-haven demand.)

Index performance is provided for illustrative purposes only. Indices are unmanaged, and it is not possible to invest directly in an index. Index returns do not reflect the deduction of advisory fees, transaction costs, or other expenses, which would reduce performance. Past performance does not guarantee future results.

U.S. Equities – Another Great Year, with “Value” Back in Play

2025 turned out to be another great year for U.S. equity markets. The S&P 500 Index gained nearly 18% including dividends and set multiple new records. But unlike last year’s tech-dominated surge, in Q4 the rally broadened out and brought some old-fashioned value stocks back into favor. In fact, value-oriented indices outperformed growth in many cases – the international EAFE Value index beat the U.S. large-cap growth index by almost 15 percentage points for the year – a striking reversal after years of growth-stock leadership.

Despite the S&P 500’s rise, a substantial minority of stocks sat out the party – by the end of November, over 200 of the index’s 500 companies showed losses on the year. Even the “Magnificent 7” mega-cap tech stocks (Apple, Microsoft, Alphabet, Amazon, Meta, NVIDIA, Tesla) saw narrower leadership: only two of those seven beat the S&P’s return for the year. In other words, 2025 was not just the usual suspects driving the market higher. Smaller and cyclical names participated more, and the rally widened to include sectors beyond just Big Tech. We view this broader participation as a notable development, though it was far from uniform.

Winners and losers were diverse. On the winning side, the formerly under-loved value/cyclical areas performed well. Industrials, energy, and financials – sectors that have struggled in recent years – posted solid gains. On the losing side, a number of 2024’s high-flyers hit air-pockets. Several of the mega-cap growth stocks underperformed or saw much more modest gains than the index. This nuanced picture underscores why we maintain diversified equity exposure: leadership can shift quickly, and even “blue chips” can stumble. Market leadership may continue to remain in flux heading into 2026.

Fixed Income – Bonds Rebound with a Strong Year

2025 was a markedly better year for bonds. After the sharp losses bond investors suffered in 2022–23 amid rising rates, this year offered some relief and solid gains. The core U.S. bond market returned over 7%, combining steady interest income with price appreciation as longer-term yields fell from their peaks. In fact, the broad bond market (Bloomberg U.S. Aggregate Bond Index) had its best year since 2020. Ten-year Treasury yields, which started the year near 4.5%, ended around 4.2% after the Federal Reserve began cutting rates.

Crucially, bond investors are now earning real returns again. With inflation trending in the 3% range and the 10-year Treasury yield hovering about 4.2%, high-quality fixed income is finally offering a positive inflation-adjusted yield – something we haven’t seen consistently since before the pandemic. Credit spreads (the extra yield on corporate bonds above Treasuries) remained historically tight in 2025, reflecting economic resilience and low default rates.

While we don’t expect 2026 to repeat 2025’s outsized fixed income returns (that would likely require another big drop in rates), we do see bonds as offering solid return potential and diversification benefits. We have positioned our bond portfolios with a moderate duration (interest-rate sensitivity) – long enough to capture a higher yield, but not so long as to be overly exposed if rates swing up again.

AI Mania Peaks and Calms – Euphoria vs. Reality

If one theme dominated market chatter in 2025, it was and continues to be artificial intelligence (AI). The year began with frenzied optimism around AI’s transformative potential for businesses. By October, AI-driven excitement reached a fever pitch: Nvidia – the poster child of the AI hardware boom – became the first publicly traded company ever to hit a $5 trillion market cap, after its stock rocketed nearly 40% year-to-date. AI was the buzzword in corporate earnings calls (over 2,300 of these mentioned “AI” in 2025), and investors piled into any stock remotely connected to the theme. This euphoria helped propel the tech-heavy Nasdaq up 20% for the year as massive capital expenditures from tech giants boosted economic growth.

These figures are illustrative, based on historical data, and do not predict future values. Future prices and purchasing power can fluctuate significantly.

The speculative froth began to recede late in the year. After October’s peak, many AI-related stocks saw more realistic expectations temper their share prices. We were reminded that revolutionary technology cycles often have early periods of hype that far outpace immediate fundamentals. There are parallels to past tech manias: for example, Cisco and Qualcomm were high-fliers of the 1999-2000 internet bubble – companies at the heart of a transformative tech (networking and wireless) that saw their stock prices soar, only to crash and take years (in Cisco’s case, decades) to reach those highs again. We don’t necessarily predict an identical outcome for today’s AI darlings, but we do heed the lesson: even world-changing innovation can become overvalued in the short run. Valuations matter.

By year-end, the AI narrative matured from unbridled bullishness to a more nuanced view. It’s clearer to investors now that AI’s benefits – while very real – will roll out over years, with fits and starts. There is fierce competition emerging in the AI hardware and software space, which could pressure the ultra-rich profit margins that early movers like Nvidia enjoyed. Indeed, the year saw new entrants and approaches (from advanced AI chips by legacy tech firms to more efficient AI models) that broadened the story beyond one or two winners. The market also started asking, “When will all this AI investment actually translate into earnings growth?” – a question with no easy answer yet.

Our stance remains constructive about AI’s long-term impact on productivity and growth. We have exposure to the theme through quality companies we believe will harness AI to enhance their businesses. But we are selective, not speculative. We’ve been in the markets long enough to know that “game-changing” technologies can have volatile trajectories for investors. At this point, we’re past the initial sugar high of AI hype. Looking ahead, 2026 may bring more concrete progress – and likely some setbacks – in separating true AI winners from also-rans. As always, we don’t pretend to know exactly which AI projects will bear fruit fastest, but we’re focused on owning a balanced basket of innovative businesses trading at reasonable prices. AI will be a major tailwind for the economy in the coming years; our job is to benefit from it without getting caught up in any one stock’s story or chasing short-term fads.

Crypto and Blockchain – Progress Amid Volatility

Cryptocurrencies made headlines in 2025 with dramatic moves – but also with substantive developments that many may have missed. The price of Bitcoin surged to an all-time high above $126,000 in early October, only to see those gains evaporate. By year-end, Bitcoin was actually down slightly for 2025, hovering under $90,000. This round-trip encapsulates the crypto market’s perennial struggle: bursts of euphoria often give way to sharp corrections. For long-term holders, it was yet another volatile year that ended roughly where it began.

Yet, looking beyond the price swings of the coins themselves, crypto generally took significant strides in legitimacy and adoption this year. Most notably, the infrastructure of digital assets continued to mature. Stablecoins – digital tokens pegged to traditional currencies – saw remarkable growth. The total stablecoin market capitalization grew by roughly 50% in 2025, reaching over $300 billion by year-end. That suggests rising utilization of stablecoins for payments and as a bridge between crypto and fiat currency. In fact, we even witnessed the first instances of traditional financial instruments issued on public blockchains: in December, J.P. Morgan arranged a $50 million U.S. commercial paper issuance on the Solana blockchain, in one of the first deals of its kind. Around the same time, JPMorgan’s asset management arm launched its first tokenized money market fund on a public blockchain (Ethereum), seeding it with $100 million in capital. These developments are small in scale, but big in symbolism – they demonstrate that major institutions are embracing blockchain technology to handle real-world financial assets.

Another positive sign for crypto’s maturation was regulatory clarity. The U.S. passed legislation providing a framework for stablecoins and eased certain regulations on crypto trading, which boosted confidence among institutions. Several large financial firms moved further into crypto services, and we even saw the first wave of crypto-related IPOs and ETFs gain traction. In essence, while crypto prices had a middling year (after Bitcoin’s round-trip, the total crypto market cap ended not far from where it started), the crypto ecosystem quietly kept building. Innovation in areas like decentralized finance and blockchain-based payments continued at a rapid clip behind the scenes.

Our approach to this arena remains one of measured interest. We are encouraged by the integration of blockchain into mainstream finance – it validates the thesis that distributed ledger technology can enhance efficiency and transparency. However, we’re also mindful that the volatility of cryptocurrencies makes them high-risk assets that don’t suit all portfolios. We maintain a modest exposure in select portfolios, and our focus is on the underlying technology and its adoption (like those first blockchain-based debt issuances) rather than speculative trading. In 2025, crypto proved it’s not just about wild price swings; it’s steadily becoming part of the plumbing of global finance. We recognize that this trend may continue into 2026, with more real-world use cases – and yes, likely more volatility – along the way.

Gold and Silver – Precious Metals Steal the Show

Amid all the excitement in stocks and crypto, precious metals quietly delivered a notable year. We would be remiss not to highlight the performance of gold and silver in 2025 – truly standouts in the investment landscape. Gold lived up to its reputation as a safe-haven and inflation hedge, soaring over 60% for the year. Silver, often called gold’s “cheaper cousin,” actually outpaced gold’s gains, with an very strong yearly gain of 143%. Both metals benefited from a confluence of supportive factors which we discussed at length in the third quarter: persistent (if lower) inflation, a weaker dollar, geopolitical uncertainties, central bank buying, and in silver’s case, strong industrial demand (for electronics, solar panels, etc.) on top of its haven appeal.

Looking ahead, we caution that such outsized gains in metals are unlikely to be an annual affair. Gold and silver can be volatile, and they could just as easily pull back if some 2025 drivers reverse. That said, the fundamental case for a measured precious metals allocation remains intact.

Forward-looking statements reflect current views as of the date of this material and are subject to change without notice. They are not guarantees of future performance, and actual results may differ materially. Positioning strategies to benefit from market conditions does not ensure a profit or protect against loss in declining markets. Past performance is not indicative of future results.

International & Emerging Markets – A Remarkable Rebound

One of the most encouraging stories of 2025 was the resurgence of international markets – both developed and emerging. For much of the past decade, U.S. equities handily outperformed the rest of the world. Heading into this year, many investors had almost written off non-U.S. stocks, given geopolitical challenges and slower growth abroad. But, as often happens, the consensus view was turned on its head.

Emerging markets (EM), in particular, delivered a notable strong year, roaring back to life with a 33% gain in 2025. This handily outpaced U.S. stocks and came despite worries about trade wars and a sluggish Chinese economy. Several factors helped EMs. First, valuation: going into 2025, EM equities were priced at a deep discount relative to history and to U.S. stocks, so there was room for upside once sentiment improved. Second, the dollar weakened in the second half of the year, ending nearly 10% lower. A softer dollar tends to boost EM returns and eases financial conditions for countries that borrow in USD. Third, some key EM countries saw economic momentum pick up: for instance, several Latin American markets benefited from high commodity prices, and parts of Emerging Asia saw a revival in tech exports. Even geopolitically troubled regions managed to post gains as worst-case scenarios were avoided. Overall, it was a reminder that EM fortunes can turn when least expected.

International developed markets (think Europe, Japan, and other advanced economies) also had a strong year. The MSCI EAFE Index (developed markets excluding the U.S.) was up by more than 30%. The eurozone and Japan equity markets were particularly robust. Why? A combination of factors: Europe’s economy proved more resilient than feared, and many European multinationals benefited from the global tech, defense, and industrial capex boom. Japan, meanwhile, is in the midst of intriguing economic changes – decades of deflation are easing, corporate governance is improving, and the stock market hit multi-decade highs. The U.K. and Canada – markets rich in financials and resources – also delivered solid returns in 2025.

Notably, international stocks’ outperformance came even as their economies grew more slowly than the U.S. This indicates that valuation uplift and currency effects played a big role. The dollar’s decline acted as a tailwind for foreign stock performance for U.S. investors. It’s a useful reminder: when the dollar is no longer relentlessly strong, U.S.-based investors often see the benefit of holding overseas assets. In addition, market breadth abroad was healthy – the rally wasn’t confined to a few tech giants (in contrast to the U.S.’s “Magnificent 7” dynamic earlier in the year). This broader participation underscores the value of global diversification.

Outlook 2026 – Elevated Valuations, Solid Fundamentals, Moderate Expectations

Interest Rates and the Fed: The Federal Reserve executed a “soft pivot” in late 2025, cutting rates once, and has signaled it may gently lower rates further in 2026 if inflation cooperates. The benchmark 10-year Treasury yield, around 4.2%, likely already reflects some of these expectations. We’re not predicting a rapid fall in rates – any Fed easing will probably be gradual (“meeting to meeting,” as they say) and data dependent. The bond market seems priced for inflation to settle closer to 3%, which many argue is the “new 2%” in terms of what central banks might accept. If inflation indeed stabilizes around 3% and the Fed Funds rate comes down into the 3–4% range, it would be a relatively benign backdrop for both stocks and bonds. However, if inflation proves stickier, the Fed might pause or even reverse cuts – an outcome that could surprise markets.

Economic Growth and the Consumer: The U.S. economy enters 2026 with decent momentum but also clear crosscurrents. On one hand, technology investment is providing a new growth engine (recall that much of 2025’s GDP growth was propped up by AI-related capital spending). On the other hand, the consumer – which is 70% of the economy – is sending mixed signals. Consumer spending remained robust in 2025 overall, yet consumer confidence surveys have been near record lows. This reflects a so-called “K-shaped” dynamic: higher-income households (many buoyed by rising stock portfolios and still-solid job security) are spending strongly on travel, entertainment, and goods, while lower-income families (hit harder by inflation and less savings) are feeling pinched and pulling back on discretionary purchases. This pattern may persist into 2026. The upside is that the top cohorts have capacity to spend and keep the economy growing; the downside is that growth is uneven and could falter if the wealthy cut back or if asset markets – which now comprise a record percentage of household net worth – stumble.

International Factors: Globally, 2026 will bring its own set of uncertainties. Will Europe avoid recession amid higher rates and the ongoing war-related energy adjustments? Will China implement stimulus to revive its growth, or will its structural property issues drag on world demand? Can emerging markets build on 2025’s gains if the dollar stabilizes or weakens further? Will recent actions in Venezuela have knock-on effects? These questions have no easy answers, but they highlight why we stay globally diversified.

After three years in a row of stellar U.S. stock returns (the S&P 500 has gained 80% over the past 3 years, a run last seen in the late 1990s), we must acknowledge that valuations sit elevated relative to historical averages. This suggests that consistently high double-digit annual returns may be more difficult to sustain in the years ahead. While short-term market outcomes are inherently unpredictable, longer-term historical data points to more modest return expectations for U.S. stocks over the next five-to-ten year period. Meanwhile, fixed income appears positioned to deliver mid-single-digit returns, assuming interest rates remain within a reasonable range. These are not forecasts set in stone, but rather a sensible baseline from which we will adapt as conditions evolve. As always, our focus remains on navigating market shifts thoughtfully, adjusting portfolios where appropriate, and keeping short-term headlines in proper perspective.

Thank you for your continued confidence. Here’s to a healthy and prosperous 2026!

Disclosures

The information provided herein is for informational purposes only and should not be construed as investment, tax or legal advice or a recommendation to buy or sell any securities. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. 

Index performance is provided for comparison purposes only. Indices are unmanaged, and it is not possible to invest directly in an index. Index returns do not reflect the deduction of advisory fees, transaction costs, or other expenses, which would reduce performance.

This material may contain forward-looking statements based on current expectations, estimates, projections, and opinions of Stone House Investment Management, LLC, as of the date indicated. Such statements are subject to change without notice and actual results may differ materially.

Diversification does not ensure a profit or protect against loss in declining markets.

Data and statistics are obtained from sources believed to be reliable, but Stone House Investment Management, LLC, does not guarantee their accuracy or completeness.

Investment advisory services are offered through Stone House Investment Management, LLC, an SEC-registered investment adviser. Registration with the Securities and Exchange Commission does not imply that Stone House Investment Management, LLC or its representatives, has achieved a certain level of skill, certification or training or that the SEC approves of Stone House Investment Management, LLC or its services.