Looking back, 2025 was another strong year for investors despite plenty of turbulence along the way. The major indices finished higher for a third straight year, led by the S&P 500 up 16.4% and the Nasdaq up 20.4%. Under the surface, however, the year was far from uniform. Trade and tariff headlines injected uncertainty, AI remained both a tailwind and a source of skepticism, and the market continued to reward earnings durability. Rates also mattered: the Fed cut three times in the back half of the year, and while yields declined overall, investors wrestled with inflation’s path and what “higher for longer” truly meant. Even beyond equities, 2025 saw meaningful crosscurrents — oil fell sharply on oversupply expectations, the dollar weakened significantly, and precious metals produced historic gains. It was a good year, but it wasn’t a calm one.
The fourth quarter was a fitting way to end it: positive on the surface, more complicated beneath. Stocks finished higher again — the S&P up 2.35% — but leadership rotated meaningfully. Some of the largest tech names held up, yet many momentum-heavy corners lagged, highlighting the push and pull between enthusiasm around AI investment and scrutiny around profitability and funding. Earnings remained supportive, but the market became pickier; “beating expectations” was no longer enough on its own. Additional Fed easing helped, but labor market softening and global rate pressures kept investors from getting overly comfortable.
That rotation has carried into early 2026. January was positive, but what stood out was not simply that stocks were up — it was how they were up. Breadth improved, with strength shifting away from the most concentrated mega-cap areas and toward cyclicals and smaller companies. The Russell 2000 materially outperformed, and equal-weight dynamics have been encouraging. Markets that rely on a handful of names to do all the heavy lifting are inherently more fragile; markets that can advance with broader participation tend to be more durable.
At the same time, the headline environment has been anything but quiet. Developments in Venezuela introduced renewed energy and political uncertainty, though any lasting market impact appears limited given how far the country’s production has fallen over the past two decades. Meanwhile, tensions with Iran have re-escalated as discussions around nuclear policy heat up and the U.S. weighs its options. Investors have largely looked through these flare-ups, but geopolitical risk has a way of resurfacing when complacency is highest.
On the domestic front, there have been crosscurrents as well. Mortgage rates have eased from their peaks and flirted with levels not seen since 2022, yet housing activity remains sluggish as affordability is still
stretched, and many homeowners remain “locked in” to low-rate mortgages. Labor signals have been mixed: layoff announcements jumped in January, while other data continue to show resilience. For now, the backdrop appears to be neither boom nor bust, but a tug-of-war that keeps markets sensitive to each new data point.
Fed leadership has also shifted from speculation to reality. President Trump has nominated Kevin Warsh to succeed Jerome Powell as Chair, with Powell’s term ending in mid-May. Warsh previously served as a Fed Governor, and his nomination has moved the conversation from “who” to “how.” While it remains to be seen how closely his policy approach will align with the current trajectory, markets are recalibrating expectations around rates and Fed independence. Leadership changes rarely create immediate policy swings, but they do influence tone and sentiment.
Which brings us back to the present. The first six weeks of the year have already offered a familiar reminder: markets do not move in straight lines, and periodic declines can arrive with little warning, sometimes for no apparent reason at all. The S&P began the year with a four-day losing streak and briefly dipped into the red year-to-date, even as most sectors remained positive. That’s not an ominous signal so much as a return to normal. Volatility is the price of admission.
So where does that leave us? In the same place we often find ourselves after a volatile stretch: acknowledging that nobody truly knows what comes next in the short term, while recognizing that we don’t need to know to make sound decisions. Markets can sell off on fear and recover on relief. They can ignore bad news for weeks and then overreact to a single headline. They can rotate beneath the surface even when the index looks quiet. The common thread is that investors who stay disciplined, maintain proper allocation, and own high-quality assets tend to fare better than those who trade from emotion. Pullbacks will happen again. Recoveries will follow. Beneath the surface, the wheel keeps on turning.
John Webb
Private Wealth Advisor
Pinnacle Asset Management
Raymond James Financial Services
Kidd Private Wealth Group
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