December closed out 2025 with relatively muted market action. Volatility eased for most of the month, while several major equity indices traded sideways in a choppy, range-bound pattern. Below are the December returns for the popular benchmarks that investors track (Data provided by Y-Charts & Commonwealth Financial Network):

S&P 500 Index:+0.48%
Dow Jones Industrial Average: +1.64%
Nasdaq Composite Index: -0.15%
Russell 2000 Index: +0.52%
S&P Target Risk Moderate: +0.26%

2025 Recap

2025 proved to be a year that tested investor patience and discipline. While year-end index returns were strong, the journey along the way was far from smooth. After relatively calm conditions in 2023 and 2024, volatility re-emerged in 2025. The sharp sell-off in April served as a timely reminder that drawdowns are a normal part of long-term investing. Despite the almost 20% pullback, stocks repeatedly demonstrated resilience and ultimately finished the year with double-digit gains, as measured by the S&P 500.

While headlines focused on rates and politics, corporate earnings were the anchor for markets. Companies that delivered consistent cash flows, pricing power, and balance-sheet strength were rewarded, while speculative or highly leveraged businesses struggled. Even though 2025 presented challenges, it also created opportunities for patient investors who remained focused on their long-term objectives.

The third and final interest-rate cut of 2025 occurred in December, when the Federal Reserve lowered its target range to 3.50%–3.75%. As we have previously shared, a gradual and measured rate-cutting cycle has historically been supportive of equity markets, and 2025 provided another example of that dynamic.

2026 Outlook

As we have noted in the past few months, 2026 is a midterm election year, which has historically been the weakest year for equity markets within the four-year presidential cycle. Periods of market softness tend to emerge in the second quarter and persist through the third quarter, before stocks often regain strength in the fourth quarter.

As illustrated in the graphic below, the S&P 500 has tracked closely with its historical average during the first two years of the current presidential cycle (represented by the red line), providing useful context as we look ahead to the final two years.

However, while midterm election years have been weaker on average, that does not mean stocks are destined to struggle this time around. There have been many mid-term years in which equity markets delivered solid returns. Historical trends can provide helpful context, but they are not a reliable tool for predicting future outcomes.

Looking at the data from another perspective (with insights from our friends at Carson Investment Research), there are also reasons for cautious optimism as we head into 2026. Notably, this will mark President Trump’s sixth year in office. Historically, the sixth year of a president’s term has been strong for equity markets, with every instance since 1950 producing positive, double-digit returns for the S&P 500. That said, it is important to acknowledge the limited sample size when evaluating this data and the fact that President Trump’s two terms are not consecutive.

Secondly, although midterm election years have underperformed on average, data going back to 1950 show that the midterm year of a president’s second term has tended to be closer to the market’s average.

In conclusion, we will continue to focus on market price action and fundamentals, as we always have, rather than attempting to predict the future. 2025 served as a powerful reminder of why having a well-defined investment plan and the discipline to stick with it, especially during periods of uncertainty, matters.

We wish you and your family a happy and healthy 2026, and we look forward to working with you in the year ahead!

As always, don’t hesitate to contact our team with any questions.