The U.S. stock market in 2025 resembled a dramatic financial blockbuster, full of twists and turns. Throughout the year, significant volatility was driven by a confluence of factors: policy uncertainty stemming from the U.S. government transition, the shockwaves from so-called "reciprocal tariffs," the frenzy in artificial intelligence investments, U.S.-China trade talks, a federal government shutdown, three interest rate cuts by the Federal Reserve, a cooling labor market, and persistent concerns over stock valuations. Despite these numerous challenges, the three major U.S. stock indices ultimately delivered robust performances. Following gains of 24.23% in 2023 and 23.31% in 2024, the S&P 500 index rose by 16.39% in 2025; the blue-chip-focused Dow Jones Industrial Average advanced by 12.97%, while the technology-heavy Nasdaq Composite Index climbed by 20.36%. In other markets, the closing prices on December 31, 2025, were as follows: the 10-year U.S. Treasury note yield settled at 4.179%; gold futures for February 2026 delivery closed at $4,324.20 per ounce; West Texas Intermediate crude oil finished at $57.45 per barrel; the U.S. Dollar Index ended at 97.98 points; and Bitcoin spot price closed at $87,878 per coin. Analyzing the factors influencing the market in 2025 is a crucial step for judging the trends in 2026, as these underlying forces will continue to profoundly shape the market landscape in the new year.
A review of 2025 reveals that sector performance in U.S. stocks was quite divergent. U.S. tariff policies significantly impacted the stock market, creating substantial investor anxiety. However, as these policies often cycled through phases of verbal threats, followed by relaxations or deferrals, and multiple rounds of U.S.-China trade talks proceeded as scheduled, market sentiment gradually stabilized. AI investment emerged as the primary driver of the broader market, with tech giants once again providing crucial support, propelling the three major U.S. stock indices to consecutive record highs. The combined weighting of eight major tech stocks in the S&P 500 reached 37.44%, yet they contributed over 60% to the index's gain in 2025. Specifically, Google Class A, Google Class C, Broadcom, and Nvidia surged by 64.78%, 65.35%, 49.28%, and 38.88% respectively, collectively contributing 49.88% of the index's gain. Meanwhile, Microsoft, META, Tesla, Apple, and Amazon rose by 14.75%, 12.74%, 11.36%, 8.56%, and 5.21% respectively, together contributing 13.40% to the gain. Notably, the collective contribution of these eight stocks decreased from 69.53% on November 23, 2025, to 63.28% by year-end, indicating that investors were focusing on portfolio risk management by gradually selling shares of tech giants and reallocating funds to other sectors, such as healthcare. As shown in Table 1, the best-performing sectors in 2025 were Communication Services, Information Technology, Industrials, Financial Services, Utilities, and Healthcare Services. The worst-performing sectors included Real Estate, Consumer Staples, Energy, Consumer Discretionary, and Materials. Whether the U.S. stock market can maintain its strength in 2026 will largely depend on whether the currently lagging sector indices can catch up.
The foundation of U.S. creditworthiness has been shaken, leading to a trend of firmer medium- and long-term interest rates. In 2025, the so-called "reciprocal tariffs" had a severely negative impact globally, fundamentally undermining investor confidence in the United States and resulting in persistently high U.S. debt issuance costs. The U.S. federal government's total debt rose from $36.35 trillion on January 13, 2025, to $38.55 trillion by year-end, with interest payments becoming the second-largest expenditure item after Social Security. This crisis of confidence in the U.S. government has seriously endangered debt management. According to the Securities Industry and Financial Markets Association (SIFMA), the investor structure for U.S. Treasuries has changed significantly: the share held by foreign and international institutions (e.g., the International Monetary Fund) decreased from 49.25% at the end of 2014 to 34.53% by the end of the second quarter of 2025. Conversely, the share held by fund investment institutions (mutual funds and pension funds) increased from 14.03% to 21.70% over the same period, and the share held by individual investors rose from 1.65% to 10.25%. Foreign and international institutions are typically less sensitive to interest rate changes (providing a cheap source of funding), but fund companies and individual investors are highly sensitive. In other words, with overseas institutions showing weak buying appetite and domestic funds being very selective, the U.S. federal government's debt issuance costs are inevitably elevated. Despite the Federal Reserve cutting the federal funds rate three times, medium- and long-term interest rates remained stubbornly high, forcing the U.S. Treasury to increase the issuance of short-term bills. From January to November 2025, the U.S. Treasury issued $23.46 trillion in short-term bills (securities with maturities of 52 weeks or less), higher than the $22.59 trillion issued in the same period the previous year and also exceeding the $19.18 trillion issued in all of 2023. The yields on one-month, two-year, and five-year Treasury notes decreased from 4.279%, 4.236%, and 4.378% on December 31, 2024, to 3.63%, 3.475%, and 3.722% on December 31, 2025, broadly aligning with the changes in the federal funds rate. In contrast, at the end of 2024, the yields on 10-year, 20-year, and 30-year Treasury bonds were 4.572%, 4.860%, and 4.785% respectively. By the end of 2025, the yields for these maturities were 4.177%, 4.789%, and 4.841% respectively, showing minimal change, with the 30-year bond yield even higher than at the end of 2024. The persistence of high medium- and long-term interest rates places significant interest cost pressure on the U.S. government and creates a burden for households and businesses whose borrowing costs are linked to these rates, posing a major risk to economic growth in 2026.
Precious metal prices soared, benefiting the broader commodities index. The U.S. commodities market delivered a mediocre performance overall, but precious metals were exceptionally impressive. The Bloomberg Commodity Index rose from 98.7611 points at the end of 2024 to 109.69 points at the end of 2025, representing an increase of 11.07%. However, the performance of major commodity categories varied dramatically. The price of gold (front-month futures) skyrocketed from $2,641 per ounce at the end of 2024 to $4,357.10 per ounce at the end of 2025, a massive surge of 64.98%. The price of silver skyrocketed from $29.242 per ounce to $70.896 per ounce over the same period, an explosive increase of 142.45%, once again creating a market legend. As major internationally traded commodities, the prices of Brent crude and West Texas Intermediate crude (front-month futures) fell from $74.64 per barrel and $71.25 per barrel at the end of 2024 to $60.91 per barrel and $57.42 per barrel at the end of 2025, representing declines of 18.39% and 19.41%, respectively. To diversify official reserve asset risks, central banks in emerging markets, led by China, have continuously increased their gold holdings, pushing prices higher for several consecutive years. Having lagged behind gold's rally in previous years, silver experienced a catch-up surge in 2025. Similarly, the rapid development of electric vehicles has led to decreased demand for crude oil in China, significantly influencing the downward trend in global oil prices.
The crisis of confidence has led to a weakening U.S. dollar exchange rate. The adverse effects of the U.S. government's massive debt burden have transmitted to the foreign exchange market, placing the U.S. dollar under significant depreciation pressure. Faced with such enormous liabilities, the U.S. government should theoretically work to reduce the fiscal deficit aggressively. Instead, it attempted to "Make America Great Again" by cutting income taxes and increasing tariffs, a strategy the market did not endorse. The U.S. Dollar Index fell from 108.296 points at the end of 2024 to 98 points at the end of 2025, a decline of 9.51%. In 2025, the Euro, British Pound, Swiss Franc, and Canadian Dollar appreciated against the U.S. dollar by 14.49%, 8.87%, 13.13%, and 4.69%, respectively. Despite efforts by the U.S. government to promote cryptocurrencies, and a mid-year surge in popularity for stablecoins and real-world asset tokens that briefly reignited enthusiasm for the sector, Bitcoin (USD-denominated) fell by 7.03% for the full year 2025, while Ethereum declined by 11.13. Hailed by the industry as "virtual gold," Bitcoin is ultimately not real gold, and speculative trading alone cannot alter its fundamental status.
U.S. prices may rise in 2026. Financial market performance is inseparable from the broader macroeconomic environment. Currently, the market's primary concerns, in order, are the labor market, inflation, and economic growth. Job growth over the next two months will, to some extent, set the tone for the market in the first half of 2026. The quality of inflation data is questionable, but figures over the next three months may provide a clearer picture of the accurate inflation situation. The 43-day federal government shutdown will have a substantial negative impact on economic growth, making the GDP data for the fourth quarter of 2025, due in late January, particularly critical. Trend analysis suggests the labor market is softening, and inflation is unlikely to drop sharply; its retreat is expected to be a slow process. The current pillars of economic growth are personal consumption and net exports. Is personal consumption teetering on the brink of an "unaffordable consumption" crisis? The widening wealth gap and the K-shaped economic recovery in the U.S. are underlying risks. According to Moody's Analytics, the top 10% of income earners (annual income greater than $251,000) accounted for 49.20% of U.S. personal consumption in 2025 (compared to approximately 43% in 2020 and 46% in 2023). U.S. economic growth is highly dependent on high-income households, while other income groups struggle. According to American Consumer Credit Counseling, a significant portion of families with bachelor's or graduate degrees have fallen into debt distress, with the proportion rising from 34% in 2021 to 43% in 2025, even though their average annual income increased from $55,000 to $76,000. According to U.S. Customs and Border Protection (CBP), tariff revenue exceeded $200 billion between January 20 and December 15, 2025. Who pays these tariffs? The answer is the broad American populace. Many institutions predict that prices will continue to rise in 2026, as the effects of the so-called "reciprocal tariffs" gradually become apparent. Historically, the contribution of net exports to economic growth has been volatile and is unlikely to provide sustained support. Based on data from the first three quarters, AI investment supported nearly half of U.S. fixed asset investment, but the scale of this investment has noticeably weakened. AI investment is no longer favored by investors.
The U.S. stock market faces numerous uncertainties in 2026. Beyond the economic factors mentioned above, political uncertainty represents the greatest risk for financial markets in 2026. The midterm elections are the paramount political event, as control of the Senate or the House of Representatives determines ultimate control over the legislative process. While the Democratic Party is in opposition, its seat count in the House of Representatives is not far behind the Republican Party, making the battle for House seats the focal point of this year's elections. If the Democrats become the majority party in the House, the latter two years of Trump's term would likely face multiple difficulties. The term of current Fed Chair Jerome Powell ends in May; will the new Chair "open the floodgates" of monetary easing? This is a key question to watch. In the new year, U.S. financial markets will confront fresh challenges. From a valuation perspective, U.S. stock prices are high enough to be compared to the British Railway Mania of the mid-19th century and the early 2000s internet bubble (based on P/E ratios), making a market adjustment inevitable. Against a backdrop of a deteriorating macroeconomic environment, the U.S. market is unlikely to achieve significant gains in the first quarter of 2026. Investors may pin their hopes on the new Fed Chair to "save the day." In the latter half of the year, the midterm elections will influence U.S. stock market trends. Overall, the challenges facing the market outweigh the positive factors. In 2026, the U.S. stock market confronts many uncertainties, with the most detrimental scenarios including: a prolonged slump in the U.S. labor market pushing the economy into recession; rising long-term interest rates (e.g., exceeding 5%); persistently high inflation; midterm election outcomes favoring the Democratic Party; and diminishing effectiveness of Federal Reserve monetary policy. After three consecutive years of gains, the U.S. stock market is expected to enter a period of consolidation in 2026, with the S&P 500 index potentially declining by around 20%. In other markets, due to uncertain inflation trends, the Fed's policy actions are expected to be very cautious, and medium- to long-term interest rates may see a slight decrease from current levels. The U.S. dollar will continue to face depreciation pressure, with a decline of 6% considered normal. Gold prices, after a period of consolidation, still have room to rise, with a target price of $5,000 per ounce. U.S. crude oil prices are unlikely to shake off their weakness. Cryptocurrencies like Bitcoin may experience significant volatility, potentially fluctuating within a range of $65,000 to $120,000. Compared to the pre-pandemic era, the investor structure in U.S. financial markets has changed markedly: retail investors have emerged from the shadow of institutional investors, with trading volumes nearly matching those of institutions. Their trading strategies for stocks, options, cryptocurrencies, and other assets have impressed institutional players, making them an important force influencing market changes and, consequently, increasing the difficulty of market forecasting.
