Highlights
- S&P 500 index on track for 17 per cent annual gain, third straight year of double-digit returns.
- Gold prices surge nearly 70 per cent as investors seek safe haven assets amid global uncertainty.
- Federal Reserve leadership change and AI stock valuations pose risks for 2026.
US stock investors are ending 2025 on a strong note despite a turbulent year marked by president Donald Trump's global trade tariffs and mounting economic uncertainties.
The S&P 500 index is poised to close the year up approximately 17 per cent, representing the third consecutive year of double-digit gains.
The technology-heavy Nasdaq Composite index is set for a 21 per cent increase, while the Russell 2000 index of smaller companies has risen roughly 12 per cent year-to-date.
Trump's sweeping tariffs on US trading partners, announced in early April, sent shockwaves through financial markets.
The S&P 500 fell to the brink of bear market territory, a 20 per cent drop from recent highs while both the Nasdaq Composite and Russell 2000 indexes briefly tumbled into bear markets.
However, major indexes quickly rebounded after Trump scaled back his steepest tariffs, easing concerns about a tariff-driven economic slowdown.
Robert Edwards, chief investment officer at Edwards Asset Management, told BBC "The market continues to climb the wall of worry into next year."
He predicted 2026 "should be another year of record setting for stocks", citing expectations for lower borrowing costs that could boost corporate earnings.
Risks and opportunities
Strong earnings growth in corporate America has driven the stock market rally since spring, according to Parag Thatte, an equity strategist at Deutsche Bank.
Geopolitical tensions, tariffs and interest rate cut expectations also increased investor demand for safe haven assets, with gold prices on track for a nearly 70 per cent yearly increase. Bitcoin, however, is poised to end 2025 slightly lower after declining from October record highs.
Enthusiasm about artificial intelligence spending has helped tech giants Nvidia, Apple, Microsoft, Amazon and Alphabet which comprise almost 30 per cent of the S&P 500. However, fears have mounted about an AI bubble, as company valuations soar and spending continues.
Corporate earnings growth is broadening beyond tech, offering investors potential protection. Thatte called this a "key development", noting growth picked up for average-sized companies in the third quarter.
Looking ahead, significant uncertainties remain. Trump is expected to name a new Federal Reserve chair to succeed Jerome Powell after his term ends in May.
Paul Stanley, chief investment officer at Granite Bay Wealth Management, called this decision "the big uncertainty" for investors, noting "Fed chair transitions come with volatility."
