Annual Market Review 2025
The year 2025 was extraordinary for the economy and the markets. Sweeping tariffs, a cooling labor market, rising consumer prices, a prolonged U.S. federal government shutdown, turmoil in the Middle East, and the ongoing Russia-Ukraine war were among the many factors that should have signaled an economic contraction and a stock market downturn. Yet, the opposite occurred. Gross domestic product expanded, largely driven by strong consumer spending. Each of the major stock market indexes posted solid year-end gains. Corporate profits and earnings grew, despite the unemployment rate increasing to its highest level since September 2021.
The economy grew in 2025, despite early-year volatility and aggressive trade policy shifts. Gross domestic product expanded by approximately 1.8% to 2.0% for the full year. Growth was uneven; after a sluggish start in the first quarter, activity accelerated significantly in the third quarter, reaching a robust 4.3% annualized rate of growth before moderating again in quarter four. Consumer spending remained the primary engine of economic growth but became increasingly reliant on higher-income households. Business investment, particularly in artificial intelligence (AI) and software, provided a critical tailwind, offsetting weakness in manufacturing and housing.
According to FactSet, S&P 500 companies were projected to report earnings growth of approximately 12.1%-12.3% in 2025. This performance is well above the 10-year average of 8.6%. Corporate revenues for the year grew by approximately 6.9% to 7.0%, also surpassing the 10-year average of roughly 5.3%. The estimated net profit margin of 12.9%-13.0% would mark the highest annual net profit margin since FactSet began tracking the metric in 2008.
International Markets
In December 2025, European and Asian stock markets both capped off a strong year with record-breaking performances, though the month began with cautious trading and a brief correction. By the end of the year, the rally was revitalized by a U.S. Federal Reserve interest rate cut and continued optimism surrounding artificial intelligence. For 2025, the STOXX Europe 600 Index rose 19.0%; the United Kingdom's FTSE advanced 20.53%; Japan's Nikkei 225 Index gained 26.18%; and China's Shanghai Composite Index increased 18.41%.
On A Personal Note
Jeff and Peggy went to Lexington, KY to see an Andrea Boccelli concert. It was an amazing musical experience. Drew celebrated “Christmas Break” with his oldest daughter home from college and his youngest daughter off of high school. It was great to have everyone back home together again and he made the most of it hanging out with them (as much as they would allow). Chris’s youngest daughter participated in her school’s holiday choir concert. She didn’t have any solos, but her group sounded very festive! Lisa and her family went to Bardstown, KY for a long weekend to start the holiday season. They went to see A Christmas Carol presentation at My Old Home and visited Makers Mark and Heavenly Hills Distilleries. Sam enjoyed the holidays and spending time with friends and family. His dad’s Christmas Day prime rib was a hit once again! December was a very sweet month for Taylor’s family. It was so fun seeing the baby open Christmas presents for the first time (even though she was more interested in trying to eat the wrapping paper than play with the toys). Memories she hopes to never forget!
