2025 Fourth Quarter Letter
January 30, 2026 • By David K. MacLeod, CFP®, CFA
The markets and economy proved resilient again in 2025. U.S. large cap stocks rose 18%, and small cap stocks gained 13%, marking a third consecutive year of double-digit percentage stock market gains. International stocks gained more than 25% as the U.S. dollar weakened and the global economy remained in an expansionary phase. Bond funds also gained 5 to 7%, making it a good year overall for portfolio investment returns.
Stock market returns were mainly driven by strong growth in corporate earnings. As a result, the overall market is only slightly more expensive today than it was a year ago based on the price-to-earnings ratio valuation measure.
Performance broadened out in 2025, as only two of the "Magnificent 7" stocks (Nvidia and Alphabet) beat the S&P 500 return. The other five stocks underperformed. Value-oriented sectors, such as utilities, financials, and industrials, had strong returns.
We view the strong performance in stocks as an opportunity to rebalance to bonds, which are earning high yields compared with the average of the past 15 years.
We wouldn’t be surprised to see continued strength in the economy in 2026. Despite weakening job growth, consumer spending continues to drive strong growth. Workers are likely to get higher average tax refunds this year due to the 2025 tax law changes, according to JP Morgan. Tariff rebate checks could also come to American households later this year, which would further fuel consumer spending.
Inflation has been ticking up slightly, but the Fed should cut interest rates a couple more times this year while other global central banks remain on hold.
For our clients, please provide us with a copy of your 2025 tax returns after you file them. We plan to review client tax returns throughout 2026, particularly in light of recent tax law changes.
How We Help Keep Your Finances Safe from Scammers
We regularly conduct "red flag" training with all our employees. This training program is designed to help prevent damage from identity theft. One scenario involves hackers gaining access to a client’s email account and then requesting transfers.
Because of this, we watch out for suspicious-looking e-mails sent purportedly from clients that request urgent wire transfers to new bank accounts. We treat such situations with suspicion. In this situation, we will call the client directly at the phone number we have on record for confirmation.
With identity theft on the rise and online accounts getting hacked more frequently, we take the security of your investment accounts very seriously. We apologize in advance for any extra steps sometimes needed, but keeping your money safe is a priority for us.