Equity Markets
U.S. Equities
Despite headwinds from multiple directions, including softening enthusiasm around artificial intelligence, a weakening labor market, and the longest government shutdown in history, domestic equities pushed higher and posted gains for the quarter. What initially appeared to be a continuation of technology-led market performance gave way in the back half of the quarter to broader participation, as financials, industrials, and healthcare gained traction. Supported by another solid earnings season, the S&P 500 (+2.7%), Nasdaq (+2.5%), and Dow (+4.0%) closed 2025 on a strong note. Equities were further supported by additional dovish action from the Federal Reserve. Amid an economic data desert caused by the government shutdown and in the face of still above target inflation, the Fed cut policy rates at each of its last two meetings. That said, divisions within the committee have become more pronounced. Dovish members point to signs of deterioration in the labor market and a current policy stance they view as restrictive, while hawkish voices remain concerned about the risk of inflation reaccelerating.
Foreign Equities
International markets closed out a rare year of outperformance in dramatic fashion, with most regions again posting stronger gains than their US counterparts and ending near all-time highs. Eurozone equities (+5.1%) accelerated into the close of 2025, supported by continued optimism around fiscal stimulus, looser global financial conditions despite no rate cuts from the ECB, and modest improvement in member countries’ economic outlooks. Across the English Channel, UK equities (+6.3%) delivered another strong advance driven largely by multinational firms benefiting from global tailwinds rather than economic strength at home. In Japan (+12.0%), further weakening of the dollar and expectations for robust earnings growth propelled equities higher. The election of Sanae Takaichi, along with the formation of a unified coalition government, improved confidence around policy stability and raised expectations for increased fiscal stimulus. Emerging markets (+4.7%) outperformed developed market peers, supported by dovish Federal Reserve policy, exposure to technology-oriented equities, and rising commodity prices. In contrast, Chinese equities (-7.3%) declined sharply due to cooling economic data and continued deterioration in the property sector.
Fixed Income
US Treasuries
Treasuries (+0.9%) posted another quarter of positive returns, though gains were relatively muted compared to the rest of the year. The Fed navigated a data dry environment and ultimately provided two “risk-management” cuts, bringing the Fed Funds rate to a range of 3.5-3.75%. Lower policy rates pushed front-end yields down, while longer-maturity yields edged higher, resulting in a modest steepening of the yield curve.
Global Bonds
Performance was once again mixed across regions. In Europe, the ECB left interest rates unchanged, as expected, while updating its economic forecasts to reflect both stronger growth and higher core inflation. The UK experienced a favorable quarter, with gilts outperforming in quarter seeing one rate cut from the Bank of England. The UK government found itself with more balance sheet capacity than projected, leading to reduced bond issuance during the quarter. On the other hand, Japan’s newly elected prime minister announced a massive fiscal package and the Bank of Japan increased interest rates by 25-bps. Due to concern over Japan’s already high debt levels and rising interest rates, the country’s debt market suffered. The Global Aggregate Bond Index (+0.8%) crossed the finish line with gains.
Corporate Credit
Investment-grade corporate bonds (+0.8%) recorded modest gains in the final quarter, underperforming their High Yield (+1.3%) counterparts. After some initial widening in spreads, improved sentiment ultimately led to a net narrowing. While not yet a concern for credit markets, much was made of AI-driven issuance from large technology companies appearing set to change the composition of these markets.
Real Assets
Hard assets advanced during the period, supported by geopolitical tensions, a weaker dollar, persistent inflation concerns, and rising industrial demand. Precious metals led the charge, with silver climbing to a record high of $83.90 and posting gains of roughly 140% for the year, while gold delivered returns exceeding 60%. Industrial metals such as copper and lithium also moved higher, benefiting from stronger demand and tightening supply conditions. Oil, however, failed to participate in the broader rally and continued to lag. Prices declined steadily throughout 2025, with the fourth quarter extending that trend as global oversupply, elevated production, and softening demand weighed on the market. Bitcoin experienced an especially volatile quarter, surging to a peak above $126,000 in October before a sharp sell-off erased its gains for the year.
Private Markets
Private markets ended the year on steadier footing as valuation gaps narrowed and lenders became more willing to underwrite new transactions. Private equity deployment improved modestly, though realizations remain muted. Private credit spreads tightened, supported by strong investor demand. Real assets and infrastructure continued to attract capital given their inflation-linked cash flows and long-duration demand drivers. With liquidity continuing to be an issue for investors, secondary transactions remain an important release of value and potential source of compelling risk-adjusted opportunities.