The US equity markets have accomplished a notable milestone, marking the sixth occurrence since the 1940s of achieving three consecutive calendar years with double-digit gains. The S&P 500 index increased by 16.39% in the most recent year, following gains of 23% and 24% in the preceding two years, respectively. These gains were attained despite a backdrop of various impediments spanning tariff disputes, geopolitical instability, fears of a market bubble, and the longest government shutdown in US history.
According to Sam Stovall, chief investment strategist at CFRA Research, instances of three consecutive years with double-digit returns have been scarce, with only five prior occurrences before the current streak. Notably, two of these streaks extended into a four-year run, and one streak in the 1990s culminated in a remarkable five-year sequence of double-digit advances.
The equity markets in the latest year benefited from a combination of strong corporate earnings, enthusiasm surrounding advances in artificial intelligence, and investor optimism regarding anticipated Federal Reserve interest rate cuts. In the final stretch of the year, however, all three major indices—the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite—experienced four consecutive days of declines. Despite this late-year setback, overall results for the year reflected substantial underlying strength.
Craig Johnson, chief market technician at Piper Sandler, noted in early December that the equity markets concluded the year on a robust footing, with the S&P 500 positioned to complete its third straight year of double-digit returns. He attributed this performance to sustained momentum in AI developments and a resilient economy that managed to withstand fiscal and political headwinds.
Year Characterized by Heightened Market Volatility
The year commenced with the S&P 500 riding momentum from its strongest consecutive yearly performances since the 1990s. As President Donald Trump prepared for inauguration, investor sentiment leaned cautiously positive toward the potential for continued equity gains. Nevertheless, market turbulence ensued in late January after Chinese tech company DeepSeek launched an AI chatbot, prompting concerns about excessive capital deployment in AI ventures by Silicon Valley. Despite this initial setback, the markets regained momentum as investors intensified bets on US companies' prospects in an AI technological race.
Springtime brought historic volatility to markets amid the implementation of President Trump's "Liberation Day" tariffs. These levies imposed import duties on countries worldwide, threatening to disrupt the global trading system. However, stocks rebounded significantly after the White House softened its stance on the most stringent tariff proposals. By late June, the S&P 500 and Nasdaq achieved record highs not seen since earlier in the year.
Following these gains, equities generally edged higher supported by solid corporate earnings and Federal Reserve rate cuts, factors that tend to make stocks more attractive relative to bonds. The Dow Jones Industrial Average witnessed a 12.97% increase over the year. Starting the year near 43,000 points, it dipped below 37,000 points in April but recovered sharply as tariff threats eased, reaching record highs exceeding 48,000 points in rapid succession during the late summer.
Technology and AI Lead Market Gains
The technology sector, heavily represented in the Nasdaq Composite, led the market performance with a 20.36% gain, outperforming the Dow and the broader market for the third consecutive year. This rally was largely propelled by AI-related stocks since October of the previous year, when OpenAI introduced ChatGPT, igniting an AI-focused bull market.
Market volatility was pronounced during the year, with the CBOE Volatility Index (VIX) spiking to levels unseen since the COVID-19 pandemic in April and again amidst heightened geopolitical tension between Israel and Iran in June, although volatility eventually moderated.
Fixed Income Markets Steady Amid Political Developments
The US Treasury market, which plays a crucial role in determining borrowing costs throughout the economy, exhibited relative stability following a period of intense spring volatility linked to tariff-related uncertainties. The 10-year Treasury yield closed the year at 4.17%, down from 4.57% at the start, contributing to lower mortgage rates. This yield decline corresponded with a bond price rally as investors adjusted expectations toward Federal Reserve rate cuts and a weakening labor market. Conversely, the 30-year Treasury yield edged slightly higher to 4.84%, reflecting persistent concerns over inflation pressures.
Currency and Precious Metals Movements
The US dollar weakened notably against a basket of six major currencies, with the dollar index falling approximately 9.4%, marking the largest annual decline since 2017. Factors behind the dollar's retreat included challenges to the Federal Reserve's independence, declining interest rates, and uncertainties related to US policy decisions and tariffs.
Precious metals experienced substantial advances, with gold futures surging 64% to around $4,327 per troy ounce in December after hitting an all-time high exceeding $4,500. Gold's appeal as a safe haven amid economic uncertainties and inflation concerns drove this increase. Silver outperformed other precious metals, appreciating roughly 140% to briefly surpass $80 per troy ounce, fueled by its dual demand profile in investment and industrial applications such as solar panels and electric vehicles. Other metals also recorded sizeable gains: platinum increased by approximately 125% and palladium by 81%.
Commodities and Energy Price Dynamics
Copper futures climbed approximately 42%, achieving their best annual performance since 2009, supported by heightened industrial demand and uncertainty about global trade conditions and tariffs.
Oil prices experienced sharp fluctuations driven by geopolitical tensions but ended the year lower than where they started, suffering the largest annual decline since 2020. US crude prices dropped about 19.94% to $57.42 per barrel, while Brent crude fell approximately 18.48% to $60.85 per barrel.
Other commodity markets showed mixed results. Cocoa futures retraced significantly, falling 48% after a dramatic 178% rise the prior year. The decline came amid improving prospects for harvests following previous climate-related concerns.
International Markets and Cryptocurrency Performance
International stock markets recorded even stronger returns than US equities. South Korea's Kospi index led global markets with a 75.6% increase, its best annual performance since 1999, buoyed by enthusiasm surrounding AI technologies. Japan's Nikkei 225 also posted a solid 26% gain. European markets benefited from increased government defense spending and prospects for enhanced growth, with Germany's DAX index rising over 23%, marking its best year since 2019.
The weakening US dollar enhanced returns on foreign investments by increasing their value in dollar terms.
Bitcoin, the largest cryptocurrency by market capitalization, began the year with strong gains, reaching a record high around $126,000 in early October, driven by favorable US policy and wider mainstream acceptance. However, it retreated to roughly $87,255 by year-end, closing with an approximate 7.7% loss after investor concerns triggered sell-offs toward the year's close.