executive Summary
- US equity markets post strong double-digit gains led by tech and growth stocks
- Policy easing and fiscal stimulus boosted market recovery and boosted investor confidence
- Corporate buybacks exceeded $1 trillion and M&A activity was near record highs
- Treasury yields and the US dollar fell, while gold and silver saw historic gains
- WTI crude fell 20% to 5-year low
US equity markets delivered a strong and broad-based performance in 2025, overcoming a volatile and challenging start to the year that tested the resilience and adaptability of the US corporate sector. The Magnificent Seven led the way with a 24.9% annual return, which sharply increased after a massive 33% decline from the previous high in December. The reversal was driven by renewed optimism around improving macro conditions, easing inflation pressures, and productivity gains from technology and AI adoption. The Nasdaq Composite and Nasdaq 100 advanced 21.2% and 21.0%, respectively, as growth-oriented sectors regained the lead during the second and third quarters. The S&P 500 posted a total return of 17.9%, supported by broad participation across sectors, while the Dow Jones Industrials added 14.9%, reflecting the enduring strength of blue-chip companies. Small caps, represented by the Russell 2000, climbed 12.8%, boosted by a change in rate expectations in the third quarter, although midcaps lagged behind with a modest gain of 7.5%. These gains were achieved despite significant volatility in the first quarter, as investors navigated a complex macroeconomic landscape marked by a pause in the rate cut cycle, fiscal stimulus, tariff uncertainty and ongoing geopolitical concerns. By the end of the year, most major indices ended with strong double-digit gains, underscoring the strength of the recovery and the breadth of participation across sectors and market capitalisations.
A key driver of this performance was the favorable macro backdrop that emerged as the year progressed. The Federal Reserve’s pivot toward policy easing, coupled with the front-loaded fiscal stimulus package (OBCBA), provided a powerful tailwind for risk assets. Low rates, range-bound Treasury yields and a soft US dollar contributed to easy financial conditions, while inflationary pressures eased, supporting both consumer and corporate confidence. OBBBA’s permanent corporate tax cuts and incentives facilitated long-term strategic planning and increased domestic investment, while individual tax refunds boosted consumption – an important factor given that consumer spending accounts for approximately 70% of US GDP.
The year was also notable for record levels of corporate activity. US stock buyback authorizations and executions exceeded $1 trillion for the first time due to increased earnings, profit margins and free cash flow. This surge in buybacks, concentrated among the largest companies, was a testament to corporate financial strength and a key technical driver of equity market performance. Additionally, 2025 was the second-largest year on record for global M&A volume, with technology and AI-related deals making up a significant portion of the activity. The need for expanded data center capacity and the ongoing AI “arms race” fueled capex and strategic transactions, further supporting equity valuations and sector leadership.
Style performance further illustrated the changing priorities of investors throughout the year. Large-cap growth outperformed with an 18.5% return, boosted by strong rallies in the second and third quarters as rate expectations eased and liquidity conditions improved. Large-cap value gained 15.9%, benefiting from cyclical risks and stable income distribution. In the small-cap sector, growth rose 13.0% and value rose 12.6%, both recovering from heavy Q1 losses but lagging their large-cap counterparts. Investors’ wariness towards quality and scale is reflected amid geopolitical risks and uneven global growth, even as risk appetite improved towards the end of the year.
sector performance
Sector performance within the S&P 500 highlighted the impact of market rotation and structural growth themes. Communications and technology led the way with annualized returns of 33.6% and 24.0%, respectively, as companies benefited from strong digital advertising, streaming demand, and enterprise investments in cloud infrastructure and AI capabilities. Industrials and utilities also recorded strong gains, reflecting the impact of infrastructure spending and defensive positioning. Financials and Healthcare delivered mid-teens returns, supported by stable earnings and innovation. In contrast, the energy and consumer discretionary sectors lagged behind as commodity price volatility and cautious consumer sentiment weighed on returns. Staples and REITs recorded low single-digit gains, reflecting a rotation away from defensive with improving risk appetite.
Corporate fundamentals remained exceptionally strong throughout the year. S&P 500 companies delivered record profit margins of more than 12%, above the historical average, and net cash flow reached $4 trillion – more than $1 trillion above the pre-COVID baseline. These strong fundamentals provide companies with significant potential for investment, shareholder returns, and resiliency in the face of uncertainty. The combination of pro-growth economic policy, tax cuts and Fed easing supported continued margin expansion and earnings growth, with 83% of S&P 500 companies beating earnings estimates in the third quarter – well above the five- and ten-year averages.
The performance of the Russell 2000 sectors revealed sharp differences among smaller companies. Materials dominated with a notable 45.8% gain, driven by strong commodity-linked businesses and renewed capital investment in resource extraction. Healthcare came in second with 27.4% on the back of strong Q4 momentum and favorable regulatory developments, while Industrials added 15.6% amid improving domestic demand. Utilities and Communications posted mid-teen gains, but Technology managed only 7.3%. Energy rose 4.7%, while consumer discretionary and staples struggled, falling 2.6% and 3.7%, respectively, as margin compression and cautious consumer sentiment weighed on performance.
Rates, Oil, Precious Metals and the Dollar
The macro environment in 2025 was marked by significant shifts in rates, currencies, commodities and digital assets, each reflecting the interplay of monetary policy, global growth dynamics and investor sentiment. US Treasury yields declined meaningfully over the year, with the 10-year yield falling 40 basis points to 4.17% and the 2-year yield falling 77 basis points to 3.47%. The move reflects the Federal Reserve’s pivot toward policy easing, soft inflation data and softening growth expectations. The decline in yields was also supported by the “steepening” of the curve reflected by the spread of 10.2, which reached a nearly four-year high of 69 bps. Low rates helped reduce risky assets and contributed to easy financial conditions, supporting both equity and credit markets.
The US Dollar Index (DXY) experienced its worst annual decline since 2017, falling 9.9% due to the Fed’s policy changes and narrowing of the interest rate differential on the currency. Dollar weakness was further exacerbated by strong capital flows into non-US assets and the global search for yield, as investors responded to asynchronous monetary policy in major economies. The softer dollar provided a breather for US multinationals and supported commodity prices, while also contributing to a more favorable backdrop for emerging markets and global equities.
There was a clear spread across commodities, with crude oil prices falling 19.9% and hitting a five-year low. The decline in oil reflects a combination of oversupply concerns, slow demand growth and the impact of low energy prices on inflation. Despite the risk-on environment across equities and credit, energy markets remained under pressure, highlighting sector-specific challenges and the impact of structural shifts in global consumption and production.
In contrast, precious metals posted their strongest annual performance since 1979, with gold up 64.6% and silver up 148%. These extraordinary gains were driven by a combination of factors: persistent geopolitical uncertainty, investor demand for inflation hedges, and the appeal of hard assets amid a weak dollar. The rally in precious metals underlined the market’s appetite for diversification and safe havens, even as risk assets broadly performed well. Bitcoin, meanwhile, is down 6.5% in 2025 – a somewhat surprising result given the generally risk-on tone in traditional markets.
The technical backdrop for US equities was strengthened by strong investor demand for yield, tight credit spreads and the depth and liquidity of US capital markets. The US equity market represents approximately 50% of global equity market capitalization, and the fixed income market accounts for 40% of global debt securities outstanding, making the US a primary destination for global savings and investment. The combination of flexible growth, policy support and strong corporate balance sheets created an environment in which risk assets could thrive, even as dispersion across sectors and styles increased.
In short, 2025 was a year defined by resilience, adaptability and the interplay of macroeconomic, policy and corporate forces. US equities not only recovered from early-year volatility but also set new records for buybacks, M&A and capital raising while maintaining strong fundamentals and benefiting from a supportive policy environment. As companies look toward 2026, the lessons of the past year – diversification, strategic investing and financial discipline – will remain important for investors in understanding the emerging market landscape.
Nasdaq and the transformation of the US capital market
In 2025, the development of financial markets and market structure remains a central focus for Nasdaq. The exchange launched several initiatives aimed at modernizing the market infrastructure, including proposals for 23-hour trading and tokenization of assets. These efforts were designed to expand market access, enhance liquidity, and support the changing needs of public companies and investors. Nasdaq also participates in policy discussions and regulatory consultations related to these topics, contributing to the broader industry dialogue about the future of capital markets.
Nasdaq’s listing activity reflects its ongoing engagement with public companies. The exchange maintained a strong IPO win rate and recorded one of its highest years for listing switches, with a notable number of established companies transferring their primary listings from other exchanges to Nasdaq. These developments contributed to Nasdaq’s overall market share and strengthened its role in providing services and infrastructure for public companies.
Looking to 2026, market participants can expect continued progress on initiatives related to extended trading hours and digital asset infrastructure, as well as ongoing advocacy for listed companies on policy and regulatory matters. Nasdaq’s activities in these areas will continue to be part of the broader development of financial markets and market structure.
The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice on behalf of any particular security or overall investment strategy. All information contained herein is obtained by Nasdaq from sources that Nasdaq believes to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. Consultation with security professionals is strongly recommended.
