Macro Monday: 2025 Year-In-Review

Happy New year and welcome to a new series titled Macro Monday. As we kick off 2026, I hope everyone had a prosperous 2025 and a safe holiday season.

Well, 2025 was a volatile year with numerous opportunities across the market. This will be a high-level recap of some of those economic events that shaped out markets.

2025 year end review:

Shortly after inauguration of Donald J. Trump’s second term as POTUS we had a spring dominated by tariff headlines and a rapid decline in markets. “Experts” claimed these would lead to Biden-era inflation which never panned out. We still have inflation, but its trending downward.

AI was the dominating theme across the whole market. Regardless of the business, AI was everywhere, in every form. Not a single conference call or press release was posted without at least 300 mentions of “AI”. This was surely one of those years where everyone repeated AI if only for the subsequent boost in stock price.

On the small-cap front, many companies transitioned to a bitcoin or crypto treasury. This lead to large opportunities in these tickers. The long-side took gains as the crypto-treasury strategy was discussed openly, PIPEs (Private Investment in Public Equities) funded the experiments. After rapid rise, the longs exited and the shorts made their cut on the way down. No one discusses these companies any more.

Quantum names had a moment in 2025. Youtubers then posted videos of “why they left a quantum computing company” in short. Good PR and breakthroughs in quantum increased speculation in the names. As of now, there’s very minimal use cases for quantum computing and quite frankly, the CapEx and R&D budget is best spent on AI-infrastructure, training, and software. Companies of all sizes are adopting AI and paying for it with hard earned cash. Quantum? Still a pipe dream like sustainable fusion reactor technology. 

2025 Also marked the third-consecutive year of double digit gains for indexes. The narrative was AI-build out, tariffs not collapsing the economy, late-year interest rate pivot by the Fed, continued strength into Q4, and the Santa Claus rally

The S&P 500 sectors did very well excluding real estate and consumer defensive/staples.

Key take-aways:

• Basic materials and Communications services were top gainers for the year wit ha return of 34.17 and 28.62% respectively.
• The second half of the year provided a significant contribution to overall gains. These notable sectors were: Basic materials with 18.63%, Communication services at 18.86%, Technology at 11.88% and 15.31% for healthcare.
• The first half returns for those sectors are as follows: Basic materials with 15.54%, Communication services at 9.76%, Technology at 6.71% and a loss of 2.40% for healthcare.
  • Healthcare being heavily influenced by the steep decline in UNH stock following the assassination of the CEO and subsequent investigations in their questionable business practices.

Key Drivers:

AI: AI gains were heavily biased toward US mega-cap tech. Nvidia, Alphabet, Microsoft, Broadcom, and Palantir contributing to hover half of the S&P 500’s total return.

Monetary Easing: Federal Reserve cut rates three times this year, bringing the target range to 3.50-3.75%

Commodity divergence: Equities had a healthy return for 2025. While inflation eased, employment stayed strong, oil declined almost 20%, we’d expect metals like gold and silver to stay muted, but quite the opposite, they are on a tear, up 63.9% and [silver % return] respectively. Copper prices gave increased significantly on account of the AI buildout which also makes building a new home marginally less affordable.

The Economy:

GDP growth: real GDP growth expected around 1.9% for 2025. Q3 had a very unexpectedly large increase tro 4.3%. GDPNow reported an expected growth of 2.7-2.8% for 4Q2025.

Inflation: Core inflation ended the year near 2.7%. I hear that eggs and gas prices are down.

Unemployment: Unemployment moved higher to 4.3% which is still acceptable. Tech giants have been increasing lay-offs amid AI-led job replacements.

FOMC Minutes: The December meeting minutes (released December 30) revealed a “wait-and-see” stance. The Whitehouse has been pressing the Fed to reduce rates, personally attacking J.Pow himself. J.Pow appears to be hawkish, waiting for evidence of inflation returning back to the 2%  target.

The Week Ahead:

• ISM Manufacturing PMI (today)
• December Jobs Report (Friday)
• Automotive Sales

Valuations and indexes are near historic highs, Trump’s unknowable, unpredictable playbook, and geopolitical tensions will make 2026 an interesting year.