Sometimes financial market returns don’t match the narrative conveyed by the news media or popular opinion. 2025 was one of those times.
The US stock market experienced its third year in a row of double-digit gains in 2025, despite all the negative news incidents and dire expectations of many investors. The events of 2025 provided a lot of fuel for market bears and pessimists alike. Starting in April with the arrival of tariffs, market uncertainty was persistent throughout the year. Concerns about high interest rates and anticipated rate cuts, questions about the viability and profitability of artificial intelligence companies trading at big valuations, and the longest government shutdown in US history in the fall did little to slow stock market returns in 2025.
Looking Abroad
Concerns about US economic developments and the government shutdown overshadowed one of the bigger stories of 2025: robust international equity market returns. Marking a significant departure from recent years, international markets significantly outperformed US markets. In fact, developed international equity markets outperformed US equities by their widest margin since 1993!
Developed international markets, as measured by the MSCI World ex USA index, gained 31.9% for all of 2025. Emerging markets performed even better than developed international markets in 2025, as the MSCI Emerging Markets index finished 2025 with a 33.6% gain.
The performance of both developed international and emerging markets in 2025 serves as an important reminder of the benefits that investors receive from owning a properly diversified investment portfolio constructed with domestic, international developed, and emerging market asset classes, among others.
Strong Performance Despite Significant Headwinds
Despite all of the economic headwinds outlined above, US equity markets experienced another strong performance year in 2025. The S&P 500 index gained 17.9% for 2025 despite a precipitous drop in April in a sharp reaction to the imposition of new tariffs against many of America’s international trade partners. The longest government shutdown in US history, later in the year, also failed to stop equity markets from a third strong year of investment returns.
Technology companies’ stocks fell at year-end from their highs earlier in the year, but still had a strong showing. The tech-heavy Nasdaq index advanced 20.9% in 2025 to lead the major domestic equity market indexes. One of the biggest stories of the year was the milestones reached by one of the Nasdaq’s best-performing stocks. NVIDIA reached a market capitalization of $4 trillion earlier in 2025. Months later, NVIDIA would be the first publicly traded company to reach a $5 trillion market capitalization.
The third major (and oldest) domestic equity index followed by many investors, the Dow Jones Industrial Average (DJIA), gained 13.0% in 2025.
The domestic bond market had a strong year in 2025 as well. The broad bond market posted gains in 2025, with the Bloomberg US Aggregate Bond index up 7.3%, its best annual return since 2020. US Treasuries also had a strong year, returning 6.3% in 2025, but drove the yield on the benchmark 10-year Treasury down to 4.18%.
Precious metals, especially gold and silver, experienced strong demand in 2025. Investors’ increased appetite for gold drove prices up over 50% to above $4,000 per ounce for the first time in history. As history has shown since 1970, however, gold and other precious metals’ prices have demonstrated a weak relationship to changes in the Gross Domestic Product, as a strong connection to the economy would suggest. Instead, many investors purchase precious metals as a hedge against inflation.
Key Takeaways from 2025
2025 was a profitable year for disciplined investors in both investment returns and investing lessons.
One important lesson to be learned from 2025 is the importance of diversification. Nobel Laureate Merton Miller is famous for his quote, “Diversification is your buddy.” This belief of spreading investments across multiple asset classes reduces both risk to investors and the impact of poorly performing investments.
In 2025, strong equity returns in international and emerging markets buffered investors’ portfolios during a period of extreme volatility for domestic markets in the month of April.
The second important lesson is the importance of patience and discipline in the face of market fluctuations and volatility. Instead of panicking and selling off when markets declined sharply in April, disciplined investors took advantage of the volatility to engage in tax-loss harvesting, Roth IRA conversions, and/or rebalancing strategies.
Sources: Dimensional Fund Advisors, S&P Global, Bloomberg Finance LP and MSCI data ©