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It was a scary year for investors.
It was scary because concerns about everything from President Donald Trump’s tariffs to interest rates to a potential bubble in artificial-intelligence technology led to several historic declines in the U.S. stock market. In the end, though, it was a good year for anyone with the stomach to swing by.
S&P 500 index funds, which are at the heart of many savers’ 401(k) accounts, returned more than 18% in 2025 through Dec. 11, setting a record high that day. This is his third consecutive year of big returns.
Here’s a look at some of the surprises that shaped the financial markets:
tariff shocks
Trump’s biggest surprise came on “Liberation Day” in April, when he announced a sweeping set of tariffs that were more severe than investors expected.
This immediately created concerns about a possible recession and rising inflation. The S&P 500 fell nearly 5% on April 3, its worst day since the 2020 COVID crash. The next day, it fell 6% after China’s reaction raised fears of a tit-for-tat trade war.
The impact of the tariffs went beyond the stock market. The value of the US dollar fell, and fear also shook the US treasury market, considered perhaps the safest in existence.
Seeing the US bond market becoming “volatile”, Trump finally halted his tariffs on April 9, bringing relief. wall StreetSince then, Trump has negotiated agreements with countries to reduce proposed tariff rates on their imports, helping to calm investor jitters,
Wall Street soared higher in a remarkably quiet summer thanks to artificial-intelligence technology enthusiasm and strong profit reports from companies. The market was also boosted by three cuts in interest rates made by the Government of India. federal reserve.
Trade concerns could still wreak havoc in markets, and Trump recently sent stocks soaring with threats of higher tariffs in October. China,
Trump and the Fed
Another surprise was how hard and personally Trump lobbied the Federal Reserve to lower interest rates.
The Fed traditionally operates separately from the rest of Washington, and makes its decisions on interest rates without succumbing to political whims. Such freedom, according to the thinking, gives freedom to take unpopular steps that are necessary for the long-term health of the economy.
For example, keeping interest rates high could slow the economy and frustrate politicians trying to please voters. But it may also be the medicine needed to bring hyperinflation under control.
As inflation consistently remained above the Fed’s 2% target, the central bank kept rates steady through August. This angered Trump – even though it was his own trade policies that were stoking fears about inflation.
Trump elected consecutive Fed Chairman jerome powellHe was even given the nickname “Too Late”. Their strained relationship reached a fever pitch in July when Trump, in front of cameras, accused Powell of mismanaging the costs of renovating the Fed’s headquarters. In return, Powell shook his head.
Even though Wall Street likes low rates, the personal attacks caused some uneasiness in financial markets over the prospect of a less independent Fed. Powell’s turn as Fed chair is set to end in May, and the widespread expectation is that Trump will select a replacement more likely to cut rates.
ok but not before
“America First” did not extend to global markets. Even as U.S. stocks posted another double-digit gain, many foreign markets fared even better.
The technology frenzy that helped fuel gains for the S&P 500 and Nasdaq Composite has sent Korea’s KOSPI higher in 2025, enjoying its biggest gain in more than two decades. South Korea is a technology hub and companies including Samsung and SK Hynix have grown amid a focus on artificial intelligence investment and progress.
Japan’s Nikkei 225 gained double digits for the third consecutive year. Gains surged following national elections in October and November and plans for a $135 billion stimulus package, in addition to a focus on the AI and technology sector.
This year was also strong in European markets. Germany’s DAX got a boost as the government announced plans to increase spending on infrastructure and defense, which could boost economic growth in Europe’s biggest economy.
The European Central Bank cut interest rates in the first half of the year, which helped boost financial markets across Europe. France’s CAC 40 was a laggard, up 10% as of Monday.
crypto ups and downs
Despite a reputation for volatility, the cryptocurrency still managed to surprise market watchers.
Bitcoin declined along with most other assets at the beginning of the year as Trump’s trade policies steered investors away from riskier investments.
The most widely used cryptocurrency made a comeback as the White House and Congress threw their support behind digital assets and the Trump family launched several crypto ventures. Retail investors joined in by putting money into Bitcoin ETFs, stock-like investments that allow them to profit from price increases without having to store Bitcoin in a digital wallet. Some companies, notably Strategy Inc., made buying and holding crypto the essence of their business and their shares surged.
Bitcoin reached a high of $125,000 in early October. But, almost as quickly, digital assets fell as investors worried that the prices of shining stars like tech stocks and crypto had gotten too high. As of Monday afternoon, Bitcoin was trading around $89,400, about 28% below the peak and 4% below where it started the year.
What’s next?
Many professional investors think there could be more gains in 2026.
This is because most people expect the economy to grow and avoid a recession. This will help US companies increase their profits, which stock prices track in the long run. According to FactSet, analysts expect earnings per share to grow 14.5% in 2026 for companies in the S&P 500. This would be an acceleration from the 12.1% growth projected for 2025.
But some concerns of this year will remain. Chief among them is the concern that all the investment in artificial-intelligence technology may not generate enough profits and productivity to make it worth it. This could keep pressure on AI stocks like Nvidia and Broadcom, which were responsible for so much of the market’s gains this year.
And critics say it’s not just AI stocks that are too expensive. Stocks look expensive in the market even after prices have increased faster than profits.
Vanguard strategists estimate that U.S. stocks may return only 3.5% to 5.5% in annual returns over the next 10 years. Only twice in the last 10 years has the S&P 500 failed to meet that standard, assuming the year ends without another selloff.
At Bank of America, strategist Savita Subramanian says the S&P 500 could rise by less than half as much as profits in 2026. He said this could be a result of reduced stock buybacks by companies as well as lower rate cuts by global central banks.
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Reporter Damien Trois contributed.