Quarterly Newsletters
Quarterly Newsletter for the 4th Quarter 2025
The U.S. stock market, throughout the 2025 calendar year, was characterized by dramatic volatility, geopolitical trade tensions, aggressive tariffs, severe market selloffs, fears of an AI bubble, a weaking dollar, a slump in the housing market and a government shutdown. Through it all, the markets ended the year with solid double-digit returns.
On a price return basis, the Dow Jones Industrial Average (DJIA) gained 3.59% for the fourth quarter and 12.97% for the year. The Standard and Poor’s 500 (S&P 500) picked up 2.35% during the quarter and 16.39% for the year; while the tech heavy NASDAQ had returns of 2.57% for the quarter, ending the year up 20.36%. Overseas, the MSCI All Country World ex-U.S. Index posted an impressive return of 32.39% for the year. The Emerging Markets Index, following suit, finishing up 33.57%. In the fixed income environment, the Merrill Lynch 3-month Treasury Bill Index yielded 4.18% and the Bloomberg Aggregate Bond Index returned 7.30% for the year.
Fixed Income Market (Bonds): Last year the FOMC (Federal Open Market Committee- The Fed) lowered interest rates three times - dropping the rate from 3.75% to 3.50%. The Fed is saddled with a dual mandate: maintain both low unemployment and low inflation. Normally, raising interest rates lowers inflation but causes unemployment, while lower interest rates tend to lower unemployment but causes inflation. The Fed, at this point, seems to be waiting for clear signs that inflation is moving toward their 2% target. The next Fed meeting is January 28th. Initial hopes of the imminent rate cut seem to have dissipated in the presence of strong labor data and a stable to slowly declining inflation rate. There is certainly no consensus regarding the Fed movements during 2026. Some experts predict no rate cuts, while others predict two or more. Of course, we cannot ignore the fact that President Trump and Jerome Powell, the Fed Chair, are not in agreement regarding interest rates- the President wants them much lower, and Powell is reluctant to accommodate him. Chairman Powell’s term at the helm ends on May 15, 2026. The President has not nominated a successor, but it is clear that a prerequisite for the job is to have a friendlier, more dovish stance on interest rates. Trump has stated that he’d like to see rates at 1%.
U.S. Equity Markets (Stocks): We have just ended the third year of a bull market that began in October 2022. Only once did the market see a downturn in the fourth year of a bull market. On average, the fourth year of a bull market produces a 14% plus rate of return. Earnings and profits drive the market. They are among the most important factors behind corporate growth and valuations. All expectations for the coming year are for earnings to meet or exceed projections. Certainly, we have issues facing the U.S. stock market; but we have a multitude of positives: reduced government regulations making it less costly for corporations to operate, a new incoming Fed Chair that will probably reduce interest rates, lower corporate taxes brought about by 100% write-offs for depreciation and R&D, lower personal taxes brought about by a modified SALT tax, lowered personal income tax brackets and increased child care deductions. The OBBBA (One Big Beautiful Bill Act) should stimulate consumer demand and increase corporate investment. Of interest is the fact that PE Ratio (Price Earnings Ratio) of the U.S. stock market was about 22 at the beginning of the year and ended the year, despite the gains, about the same.
Overseas Equity Markets (Stocks): The international stock market is finally becoming compelling. For the first time since 2006, the overseas markets have outperformed the U.S. market. As stated in past newsletters, we continue to see some areas of concern- particularly the war between Russia and Ukraine, the trade tension between the U.S. and China and the impact that tariffs have on international trade. Overseas stocks are largely priced as value stocks, which have lagged growth stocks for most of the past decade. With PE Ratios in Europe and Japan sitting near 12 (versus the U.S. at 22) investors have realized that they do not need heroic growth assumptions to earn attractive returns. Reasonable valuations and improved corporate governance, particularly in Japan, should aid in continued investment and positive returns abroad.
In conclusion, the macro message for the U.S. stock market is clear. The economy is growing faster than expected, productivity is accelerating and inflation pressures remain contained. This is a recalibration toward more efficient growth. Thus, recognizing the fact that we have a formula for volatility throughout the year, we remain very positive toward the U.S. stock market and predict double digit returns. Overseas, while we respect the fact that last year’s weaking dollar provided a sizable boost to the returns, we remain positive. Foreign stocks offer attractive pricing and support continued diversification. Regarding the fixed income environment, we are still neutral- stay the course. We continue to favor short and intermediate term investments. The future of fixed income market and interest rates will become clear with the placement of the new chair.
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Sincerely,
COMPREHENSIVE FINANCIAL PLANNING, INC.
Investment advisory services offered through Comprehensive Financial Planning, Inc, a registered investment adviser