Tag: finance

The following piece is market commentary and based on the opinions and research of the writer. The information below is for educational and informational purposes only and should not be considered personalized investment advice or a solicitation to buy or sell any securities. While the author is a financial professional, the views expressed here are personal opinions and do not reflect the unique financial situation, risk tolerance, or investment objectives of any specific individual. Reading this blog does not create an advisor-client relationship.

With 2026 underway, a look back at the previous year reveals a landscape that was far more resilient—and volatile—than many predicted. 2025 was defined by a shift from inflation anxiety to policy adaptation, as markets navigated a new regime of tariffs, deregulation, and the continued maturing of the AI boom.

Macroeconomic Pillars of 2025

The year’s macro story was a tug-of-war between restrictive trade policies and supportive monetary shifts. 

• The Policy Pivot: After a rocky start influenced by the “Liberation Day” tariff announcements the market powered forward through the summer. Following a record-breaking 43 day government shutdown, and a modest fourth quarter GDP Growth projections land around 1.9% for the year.
• The Fed Cuts: The Federal Reserve executed a series of three 25-basis-point cuts in the second half of the year, bringing the target range to 3.50%–3.75%. Crucially, the Fed ended Quantitative Tightening (QT) on December 1, signaling a return to a more “neutral” liquidity environment.
• The AI Capex Engine: Artificial Intelligence moved from a speculative theme to a fundamental driver of corporate earnings. Research indicates that roughly 60% of 2025’s GDP growth was linked to the AI buildout, particularly in data center expansion and industrial power infrastructure.

2025 Market Performance 

In 2025, the U.S. equity market recorded its third consecutive year of double-digit gains, characterized by a transition from speculative AI hype to fundamental earnings-driven growth. Despite significant early-year volatility—including a “near-bear market” in April triggered by reciprocal tariff announcements—major indices staged a powerful recovery to finish near record highs.

Major Index Performance

The market remained resilient, with all three major indices finishing in positive territory for the year:

• Nasdaq Composite: Led the indices with a 20.2% return, fueled by the persistent strength of technology and communication services.
• S&P 500: Gained 17.9%, marking the third straight year of double-digit returns (following 26.3% in 2023 and 25.0% in 2024).
• DJIA: Followed with a 13.0% gain, supported by a late-year rotation into diversified market giants as tech momentum cooled slightly in the fourth quarter.

S&P 500 Sector Returns

For the third year in a row, growth-oriented sectors dominated the market, though early signs of a rotation into industrials and financials emerged:

• Information Technology (+24.0%): The top performer in 2025—Continued its winning streak as the backbone of the global AI infrastructure buildout.
• Communication Services (+23.1%): Following information Technology Comm outperformed in 2025 driven by the massive monetization of AI-powered advertising and search tools.
• Industrials (+19.4%): Outperformed the broader index due to its critical role in power production and data center construction for AI hyperscalers.
• Laggards: All 11 sectors ended the year in the green, though Real Estate (+3.2%) and Consumer Staples (+1.6%) were the weakest performers.

Magnificent 7 Commentary

A notable divergence occurred within the “Magnificent 7” group in 2025. While the group contributed 42% of the S&P 500’s total return, only two members—Alphabet and NVIDIA—outperformed the broader index.

• Alphabet (GOOGL) (+65.9%): The standout winner of 2025, completing a “redemption arc” by proving AI could enhance rather than disrupt its core search and advertising margins. Gemini 3 was released late in 2025 driven by Googles TPU processors, creating a massive upswing late in the year.
• NVIDIA (NVDA) (+34.9%): Remained the primary “pick-and-shovel” play, becoming the first company to surpass a $5 trillion market capitalization during the year. Nvidia continues to grow at an incredible pace. There has been negative sentiment about Nvidia’s valuation in recent months, for what its worth, Nvidia still trades at a lower P/E than Costco. 
• Underperformers: Amazon (+4.8%), Apple (+12.0%), and Meta (+10.5%) all underperformed the S&P 500 as investors became more selective about immediate AI profitability.

Expectations:

I am very optimistic in 2026, early structural headwinds from Institutional rebalancing, a new Federal Reserve regime, and uncertainty with the legality of the administrations tariff policy will likely cause volatility during the first two quarters of 2026. Ultimately I think we will see continued growth in the AI space as ROI becomes more apparent. If we see the Fed cut rates, Financials are well positioned to outperform, as M&A activity should pick up along side an attractive slate of potential IPOs before year end.

With that being said, AI is the theme that drove the market for much of 2025.

In basic terms, AI is the application of computers to complete tasks that would normally need human thinking to complete. This is done by consuming, immense amounts of data and information, recognizing patterns to solve problems or prompts. It is difficult to find a sector that will not be impacted by AI adoption.

· The Death of “Drudge Work” (Professional Services): AI has evolved from a summarization tool into an active agent. In legal and corporate sectors, AI can now analyze a 100-page lease, identify conflicting clauses, negotiate terms via email, and update billing systems autonomously. This allows professionals to focus on high-level strategy, leading to documented productivity gains of over 20% in firms like JPMorgan.

· The Documentation Revolution (Healthcare): AI is directly tackling physician burnout by using ambient listening to automatically generate clinical notes and billing codes during patient visits. By saving doctors an average of 15 hours per week on paperwork, hospitals are increasing revenue through higher patient throughput while reducing wait times.

· Compute-Powered Discovery (Science & Energy): AI “design engines” are revolutionizing R&D by simulating millions of virtual experiments. In drug discovery, this is compressing the timeline for cancer treatments from 10 years down to three. This massive need for “compute” is also fast-tracking clean energy, as tech giants invest billions into nuclear and renewable projects to power the next generation of data centers.

We will be staying on top of use-cases and ROI metrics as adoption becomes more widespread.

While the technology is truly incredible, it is not without setbacks. Energy is a key constraint on the continued growth of AI. The data centers that are the backbone of the industry, consume immense amounts of energy. This drives up the cost of electricity for the population, which has created some public backlash and ultimately pushback from local governments on new datacenter development. Additionally as growth continues there is a supply issue, both creating enough energy, and transmitting on the current grid. This issue has not gone unnoticed and should lead to updated infrastructure and much needed overhaul of domestic energy policy. I will touch more on that in my next post which will include a comprehensive breakdown of the firms that are driving AI forward.

Portfolio Management Concepts: Dollar-Cost Averaging

Dollar-cost averaging (DCA) is a disciplined investment strategy where you systematically invest fixed amounts of money at regular intervals, regardless of market conditions. Rather than attempting to “time the market” with a single lump-sum investment—which carries the risk of investing right before a downturn—DCA spreads your entry over time to reduce portfolio volatility and lower your average cost per share if prices fall. Most people already utilize this strategy through automated 401(k) contributions, which allow for “set it and forget it” wealth building that removes the emotional stress of daily market fluctuations.

The primary benefit of this approach is risk reduction; while you may give up some immediate upside during a market surge, you protect yourself against the “poor timing” of a sudden crash. By “legging into” the market incrementally, you ensure that at least a portion of your capital is deployed at lower prices during market dips. This strategy is equally effective when withdrawing funds during retirement, as it prevents you from selling off too much of your portfolio during a temporary market low.

Wrapping up:

If you found this interesting or helpful, please forward on to friends and family. I will use this site to provide continued market commentary, touch on additional portfolio management and personal finance items, and provide in-depth analysis on major economic themes. Any feedback is appreciated. 

-John McKay, CFA