2025 turned out to be a strong year for investors. The S&P 500 posted a 15%+ gain (its third consecutive year of double-digit gains), bonds had their best year since 2020, and international stocks delivered unexpectedly strong returns. But the final scoreboard doesn’t tell the full story of what investors experienced throughout the year.
Just like your average football game, 2025 was full of momentum shifts, adversity, and lead changes. And just like any good coaching staff, the smartest move we can make now is to break down last year’s film so we can help improve our game plan for 2026 and beyond.
Let’s walk through our market review, the key investment themes from 2025, and what they could mean for your portfolio moving forward.
US Stocks Posted Strong Gains, But the Game Was Anything But Smooth
The S&P 500 returned roughly 17.9% in 2025, the third straight year of above-average performance. Since the bull market began in October 2022, the market has climbed roughly 90%. But those annual numbers mask a difficult stretch in the spring.
On April 2, the Trump administration announced sweeping tariffs on nearly all US imports. The market reaction was immediate, with the US total stock market index falling 12.4% within a week, its biggest drop since the COVID-19 pandemic.
Then, on April 9, the administration announced a 90-day pause on the highest tariff rates, causing the S&P 500 to surge 9.5%: one of its largest single-day gains ever. By late June, the index had fully recovered and set a new all-time high.
So what lesson does this game film teach us? Markets are often volatile in the short-term, but tend to recover over the long-term. Just like a quarterback can’t let one interception destroy his confidence for the rest of the game, investors who stay the course through turbulent stretches have historically been better positioned for long-term success.
AI Continued to Drive the Market, But the Story Is Broadening
We can’t talk about the market in 2025 without mentioning artificial intelligence. For the third year running, AI-related stocks were responsible for the bulk of the S&P 500’s gains, and Fidelity’s research found that roughly 60% of GDP growth was driven by AI.
Seven stocks accounted for just over half of the S&P 500’s gains: NVIDIA, Alphabet, Microsoft, Broadcom, JPMorgan Chase, Palantir Technologies, and Meta Platforms. Even JPMorgan Chase, a banking company, made the list partly because of its exposure to AI.
It’s important to be aware of this concentration moving forward, and potentially take proactive steps to diversify outside of AI-influenced stocks depending on your financial plan.
AI isn’t the only industry that experienced growth in 2025. In fact, all 11 S&P 500 sectors finished the year in positive territory, reminding us that gains can still be found outside of AI.
International Stocks Outperformed the US for the First Time in Years
This was one of the biggest surprises of 2025. After more than a decade of US dominance, international stocks outperformed the US by a wide margin.
The MSCI EAFE Index, which tracks developed markets outside the US and Canada, returned roughly 31%, its strongest annual gain since 2003. That represented the largest outperformance relative to the S&P 500 since 1993. A few factors worked in favor of international stocks:
- The US dollar index decreased in 2025, which tends to give international stocks an extra boost.
- Economic growth accelerated in parts of Asia and Europe, especially Germany and Japan’s corporate restructuring efforts, which attracted investor interest.
- Defense spending surged across Europe.
For investors whose entire portfolio is concentrated in US large-cap stocks, 2025 was a reminder that diversifying into foreign stocks doesn’t mean you have to sacrifice growth.
Bonds Had Their Best Year Since 2020
After several disappointing years, bonds came through in 2025. The Morningstar US Core Bond Index gained roughly 7.1%, its highest annual return since 2020. The broader Bloomberg US Aggregate Bond Index posted similar results, returning roughly 7.3%.
This matters because 2022 shook investor confidence in bonds, when both stocks and bonds fell together, and the traditional 60/40 portfolio dropped roughly 17%. A lot of investors have been questioning whether bonds should still be included in a portfolio, but 2025 helped ease these concerns. The 60/40 portfolio posted roughly 15% returns, well above its long-term average.
Learn more: Why a 60/40 Portfolio May No Longer Be Enough
What This Means for Your Portfolio in 2026 and Beyond
Looking back, 2025 rewarded patience and punished panic. As we head into 2026, the market has momentum—but also a few risks worth watching. Here are a few lessons from 2025’s game film.
Avoid Letting Headlines Drive Your Investment Decisions
This is the simplest lesson from 2025 and the hardest one to follow. The investors who sold during the April tariff panic and waited before re-entering the market missed the incredibly swift recovery. Some of the biggest single-day gains in market history have often occurred during periods of extreme fear.
One way to avoid panic selling is by working with an advisor and building a long-term investment plan. This way, you can commit to sticking with your plan regardless of whether the market is up or down on a given day.
Revisit Your Diversification Beyond US Large-Cap Stocks
If your portfolio is heavily concentrated in US equities, 2025 may be a good time to explore expanding into other assets. Last year, certain international indexes returned over 30%. While past performance is no guarantee of future results, this is a great reminder that the US is not the only place where you can get outsized returns.
This doesn’t mean you should abandon US stocks. It means that broadening your exposure across geographies, market capitalizations, and investment styles can improve your risk-adjusted returns over time, especially if US large-cap valuations continue to compress.
Consider Reallocating into Bonds
After 2022, a lot of investors wrote off bonds. In 2026, it may be time to reconsider that attitude. Bonds played an important role in 2025 by providing income and price appreciation. With yields still elevated by recent standards, bonds can play a dual role in your portfolio: generating income and cushioning against stock market volatility.
This is especially important for investors who are within 10-15 years of retirement. Locking in attractive yields now while they’re available, rather than waiting until later, can make a real difference in your retirement income.
Be Mindful of Valuations When Rebalancing
US stocks, especially in the high-growth AI sector, are largely considered to be expensive. Dramatic growth is already priced into many stock prices, and if reality doesn’t match expectations, then many stocks may get repriced downward in 2026.
When you rebalance, consider whether shifting some weight toward undervalued areas, such as international equities, value stocks, or real assets like commodities, might improve your portfolio’s long-term positioning.
Work With a Financial Advisor to Stress-Test Your Plan
Years like 2025 have a way of exposing cracks in financial plans. If you don’t have a clear plan, the best time to create one is before the next period of volatility, not during it.
A good advisor helps you build a strategy that’s designed to hold up across different market environments. They also help you stay on track when the world feels uncertain. Which, based on recent history, is most of the time.
An SD Capital Advisor Can Help You Navigate What’s Ahead
At SD Capital, we don’t believe in chasing last year’s winners or making drastic changes based on headlines. We believe in building thoughtful, personalized plans that reflect your goals, your values, and your timeline.
Whether you want a second opinion on how your portfolio handled 2025, a more detailed market review, or you’re looking for a partner to help you plan for what’s next, we’re here to think it through with you.
Reach out to schedule a conversation.
Frequently Asked Questions
How did the stock market perform in 2025?
The S&P 500 returned roughly 17.9%, including dividends, marking its third consecutive year of double-digit gains. However, the year included significant volatility, with a sharp sell-off in April followed by a strong recovery through the rest of the year.
Should I move my investments out of US stocks after strong international performance?
Not necessarily. One year of strong performance doesn’t mean international stocks will continue to lead. But 2025 did highlight the value of geographic diversification. Most investors benefit from having some allocation to international equities rather than being entirely concentrated in US stocks.
Are high stock valuations a reason to sell everything?
No. Valuations are a useful gauge of long-term expected returns, but they’re not always the best tool for predicting short-term market moves. The more practical response to elevated valuations is to make sure your portfolio is well-diversified and aligned with your risk tolerance and timeline, not to try to time the market.
The opinions and market review expressed in this material are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is not a guarantee of future results. All indices are unmanaged and cannot be invested in directly.
Investing involves risk, including the potential loss of principal. No investment strategy can guarantee success or protect against loss in all market conditions.
This material is not intended to be a substitute for individualized financial, tax, or legal advice. Please consult your financial advisor, tax professional, or legal counsel regarding your specific situation.
Jason has been with SD Capital since 2015, bringing deep experience and a calm, steady approach to financial planning. He lives in Perrysburg with his wife Sarah and their three kids, and spends his free time golfing, playing pickup sports, and tackling home projects.
