Executive Summary
- U.S. equity markets posted strong double-digit gains, led by tech and growth stocks
- Policy easing and fiscal stimulus fueled market recovery and boosted investor confidence
- Corporate buybacks surpassed $1 trillion and M&A activity was near record highs
- Treasury yields and the U.S. dollar fell, while gold and silver saw historic gains
- WTI crude declined 20% to 5-year lows
U.S. equity markets delivered a robust and broad-based performance in 2025, overcoming a volatile and challenging start to the year that tested the resilience and adaptability of the American corporate sector. The Magnificent Seven led the way with a 24.9% annual return, rebounding sharply after a steep 33% decline from the prior December high. Its reversal was fueled by improving macro conditions, easing inflation pressures, and renewed optimism around productivity gains from technology and AI adoption. The Nasdaq Composite and Nasdaq 100 followed closely, advancing 21.2% and 21.0%, respectively, as growth-oriented sectors regained leadership during the second and third quarters. The S&P 500 posted a total return of 17.9%, supported by broad participation across sectors, while the Dow Jones Industrials added 14.9%, reflecting the enduring strength of blue-chip companies. Small caps, represented by the Russell 2000, climbed 12.8%, aided by a surge in the third quarter as rate expectations shifted, though midcaps lagged with a more modest 7.5% gain. These gains were achieved despite significant volatility in the first quarter, as investors navigated a complex macroeconomic landscape marked by a pause in the rate cut cycle, evolving fiscal stimulus, tariff uncertainty, and ongoing geopolitical concerns. By year-end, most major indices finished with strong double-digit gains, underscoring the strength of the recovery and the breadth of participation across sectors and market capitalizations.
A key driver of this performance was the favorable macro backdrop that emerged as the year progressed. The Federal Reserve’s pivot toward policy easing, combined with a front-loaded fiscal stimulus package (the OBBBA), provided a powerful tailwind for risk assets. Lower rates, range-bound Treasury yields, and a softer U.S. dollar contributed to easier financial conditions, while inflation pressures moderated, supporting both consumer and corporate confidence. The OBBBA’s permanent corporate tax cuts and incentives facilitated long-term strategic planning and increased domestic investment, while individual tax refunds boosted consumption – a critical factor given that consumer spending accounts for nearly 70% of U.S. GDP.
The year was also notable for record levels of corporate activity. U.S. stock buyback authorizations and executions surpassed $1 trillion for the first time, driven by elevated earnings, profit margins, and free cash flows. This surge in buybacks, concentrated among the largest companies, was both a testament to corporate financial strength and a key technical driver of equity market performance. At the same time, 2025 was the second-largest year on record for global M&A volume, with technology and AI-related deals accounting for a significant share of activity. The need for expanded data center capacity and the ongoing AI “arms race” fueled capital expenditures and strategic transactions, further supporting equity valuations and sector leadership.
Style performance further illustrated shifting investor preferences throughout the year. Large-cap growth outperformed with an 18.5% return, buoyed by strong rallies in Q2 and Q3 as rate expectations moderated and liquidity conditions improved. Large-cap value gained 15.9%, benefiting from cyclical exposure and steady earnings delivery. In the small-cap space, growth rose 13.0% and value increased 12.6%, both recovering from steep Q1 losses but trailing their large-cap counterparts. The rotation toward quality and scale reflected investor caution amid lingering geopolitical risks and uneven global growth, even as risk appetite improved later in the year.
Sector Performance
Sector performance within the S&P 500 highlighted the market’s rotation and the influence of structural growth themes. Communications and Technology led the way, with annual returns of 33.6% and 24.0%, respectively, as companies benefited from robust digital advertising, streaming demand, and enterprise investment in cloud infrastructure and AI capabilities. Industrials and Utilities also posted strong gains, reflecting the impact of infrastructure spending and defensive positioning. Financials and Healthcare delivered mid-teen returns, supported by stable earnings and innovation. In contrast, Energy and Consumer Discretionary sectors lagged, as commodity price volatility and cautious consumer sentiment weighed on returns. Staples and REITs posted low single-digit gains, reflecting a rotation away from defensives as risk appetite improved.
Corporate fundamentals remained exceptionally strong throughout the year. S&P 500 companies delivered record profit margins above 12%, above historical averages, and net cash flow approached $4 trillion—over $1 trillion higher than pre-COVID baselines. These robust fundamentals provided companies with significant capacity for investment, shareholder returns, and resilience in the face of uncertainty. The combination of pro-growth economic policy, tax cuts, and Fed easing supported continued margin expansion and earnings growth, with 83% of S&P 500 companies beating earnings estimates in the third quarter – well above five- and ten-year averages.
The performance of the Russell 2000 sectors revealed sharper divergences among smaller companies. Materials dominated with a remarkable 45.8% gain, driven by strong commodity-linked businesses and renewed capital investment in resource extraction. Healthcare followed at 27.4%, buoyed by robust Q4 momentum and favorable regulatory developments, while Industrials added 15.6% amid improving domestic demand. Utilities and Communications posted mid-teen gains, but Technology managed only 7.3%. Energy rose 4.7%, while Consumer Discretionary and Staples struggled, declining 2.6% and 3.7%, respectively, as margin compression and cautious consumer sentiment weighed on performance.
Rates, Oil, Precious Metals, and the Dollar
The macro environment in 2025 was marked by significant shifts across rates, currencies, commodities, and digital assets, each reflecting the interplay of monetary policy, global growth dynamics, and investor sentiment. U.S. Treasury yields declined meaningfully over the year, with the 10-year yield falling 40 basis points to 4.17% and the 2-year yield dropping 77 basis points to 3.47%. This move reflected the Federal Reserve’s pivot toward policy easing, softer inflation data, and a moderation in growth expectations. The decline in yields was also supported by a “bull steepening” of the curve reflected by the 10’s, 2’s spread reaching a near four-year high to 69bps. Lower rates helped underpin risk assets and contributed to easier financial conditions, supporting both equity and credit markets.
The U.S. Dollar Index (DXY) experienced its worst annual decline since 2017, falling 9.9% as the Fed’s policy shift and narrowing interest rate differentials weighed on the currency. The dollar’s weakness was further amplified by robust capital flows into non-U.S. assets and a global search for yield, as investors responded to asynchronous monetary policy across major economies. The softer dollar provided a tailwind for U.S. multinationals and supported commodity prices, while also contributing to a more favorable backdrop for emerging markets and global equities.
Commodities saw pronounced dispersion, with crude oil prices declining 19.9% and finishing near five-year lows. The drop in oil reflected a combination of oversupply concerns, subdued demand growth, and the impact of lower energy prices on inflation. Despite the risk-on environment in equities and credit, energy markets remained under pressure, highlighting the sector-specific challenges and the influence of structural shifts in global consumption and production.
In stark contrast, precious metals delivered their strongest annual performance since 1979, with gold surging 64.6% and silver soaring 148%. These extraordinary gains were driven by a combination of factors: persistent geopolitical uncertainty, investor demand for inflation hedges, and the appeal of hard assets amid a weaker dollar. The rally in precious metals underscored the market’s appetite for diversification and safe havens, even as risk assets broadly performed well. Bitcoin, meanwhile, declined 6.5% in 2025 — a somewhat surprising outcome given the generally risk-on tone in traditional markets.
The technical backdrop for U.S. equities was reinforced by strong investor demand for yield, tight credit spreads, and the depth and liquidity of U.S. capital markets. The U.S. equity market represents approximately 50% of global equity market capitalization, and the fixed income market accounts for 40% of global debt securities outstanding, making the U.S. a primary destination for global savings and investment. The combination of resilient growth, policy support, and robust corporate balance sheets created an environment in which risk assets could thrive, even as dispersion across sectors and styles increased.
In summary, 2025 was a year defined by resilience, adaptability, and the interplay of macroeconomic, policy, and corporate forces. U.S. equities not only recovered from early-year volatility but also set new records for buybacks, M&A, and capital raising, all while maintaining strong fundamentals and benefiting from a supportive policy environment. As companies look ahead to 2026, the lessons of the past year – diversification, strategic investment, and financial discipline – will remain critical to investors in navigating an evolving market landscape.
Nasdaq and the Transformation of U.S. Capital Markets
In 2025, the evolution of financial markets and market structure remained a central focus for Nasdaq. The exchange advanced several initiatives aimed at modernizing market infrastructure, including proposals for 23-hour trading and the tokenization of assets. These efforts were designed to enhance market accessibility, increase liquidity, and support the changing needs of public companies and investors. Nasdaq also participated in policy discussions and regulatory consultations related to these topics, contributing to broader industry dialogue about the future of capital markets.
Nasdaq’s listing activity reflected ongoing engagement with public companies. The exchange maintained a strong IPO win rate and recorded one of its highest years for listing switches, with a notable number of established companies transferring their primary listing from other exchanges to Nasdaq. These developments contributed to Nasdaq’s overall market share and reinforced its role in providing services and infrastructure for public companies.
Looking ahead to 2026, market participants can expect continued progress on initiatives related to expanded trading hours and digital asset infrastructure, as well as ongoing advocacy for listed companies in policy and regulatory matters. Nasdaq’s activities in these areas will remain part of the broader evolution of financial markets and market structure.
The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM SECURITIES PROFESSIONAL IS STRONGLY ADVISED.