Financial markets closed 2025 with broad gains, marking three straight years of positive returns for both stocks and bonds. While U.S. stocks have driven the global bull market in recent years, international markets stole the spotlight this year. The MSCI ACWI ex-US Index, representing a global basket of non-U.S. developed and emerging-market stocks, surged more than 30%, comfortably outperforming the S&P 500’s 18% gain. Meanwhile, bonds settled back into their traditional role of income generation and diversification. The U.S. Aggregate Bond Index rose roughly 7% as interest rates returned to historically normal levels.

At the start of the year, investors faced an imposing "Wall of Worry.” Between a change in U.S. government leadership, stubborn inflation, and a handful of technology stocks seemingly carrying the entire market, there were plenty of reasons to believe the bull market might run out of steam. These were rational concerns, making confidence feel fragile throughout the year.

However, 2025 was a powerful reminder of why it's important to prioritize long-term objectives over headlines. Imagine a "remote mountain" investor—someone who skipped the news entirely and only reviewed the data at year-end. That investor would see S&P 500 corporate earnings growth exceeding 12%, inflation stabilizing below 3%, and U.S. economic growth of roughly 4% in the third quarter. To them, the year’s success wouldn’t feel like a lucky break; it would suggest that fundamentals were quietly doing their job, even as the headlines made the journey feel dramatic.

Of course, most of us don’t live on a remote mountain; we live in the "five-minute" market. If you’ve spent time in Colorado, you may have heard the saying: “If you don’t like the weather, just wait five minutes.” Market sentiment in 2025 often felt the same way. The best example was the April "Tariff Tantrum,” where news of reciprocal tariffs hit the tape and stock prices dropped sharply. Yet, just as quickly as the market backlash arrived, the administration softened its tariff stance and markets rebounded to new highs. This volatility served as a reminder that a steady hand helps investors remain resilient even when markets feel uncomfortable in the moment.

The Federal Reserve was also caught in a version of the “wait five minutes” cycle. As the labor market cooled, debate intensified over whether policymakers were moving too slowly. Ultimately, a growing consensus allowed the Fed to shift from wait-and-see to action, delivering three interest-rate cuts in the second half of the year to support the market’s upward momentum.

Not all headlines triggered notable market responses. On the fiscal front, the most significant development was the passage of the “One Big Beautiful Bill Act” (OBBBA). As is often the case with sweeping legislation, the outcome was a mixed bag. While the bill introduced tax policies aimed at supporting domestic growth, it also created uncertainty regarding spending priorities and changes to public benefit programs. How these shifts ultimately flow through to the economy and markets remains to be seen, but they are important to monitor.

International markets also highlighted a more gradually developing theme. A weaker U.S. dollar provided a short-term tailwind, but attractive valuations, improving policy environments, and renewed growth in select regions provided more durable support for returns. Despite years of strategists highlighting the benefits of diversification and relative valuations, investors did not act until 2025, when the historical link between lower entry prices and stronger long-term returns became harder to ignore.

As the new year begins, some clouds remain on the horizon. Market concentration in large U.S. technology-related companies is at record levels; a small number of companies account for a large share of market performance, which could lead to increased volatility. While these companies have delivered strong earnings growth, remaining vigilant about balancing risk through diversification can help protect portfolios during potential swings.

Broader economic disparities also persist. Higher-income earners and asset owners have benefited from recent growth and stock-market appreciation, while lower-income households continue to face pressure from slower wage gains, higher unemployment, and elevated price levels. While a widening wealth gap could strain the broader U.S. economy, global growth prospects for 2026 remain generally positive, and the long-term outlook appears constructive for diversified investors.

This year reinforced a familiar lesson: successful investing is rarely about reacting to every shift in conditions. Many of the concerns that felt urgent at the time passed more quickly than expected. For disciplined and diversified investors, staying invested and focused on fundamentals once again mattered most. Just as Coloradans learn not to assume tomorrow’s weather based on today’s, prioritizing process over prediction can better position portfolios to navigate uncertainty and remain aligned with long-term goals.

If you have any questions or concerns about our approach, please don’t hesitate to reach out. We thank you for your continued trust and support.

Investing involves risks, including possible loss of principal. The opinions expressed may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. Past performance is no guarantee of future results. There is no guarantee that any forecasts made will come to pass.

Investment Advisory Services are provided through True Link Financial Advisors, LLC, (the “Adviser”) an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) and wholly-owned subsidiary of True Link Financial, Inc. (“True Link Financial” and, together with the Adviser, “True Link”) Registration with the SEC does not imply a certain level of skill or training nor does it constitute an endorsement of the advisory firm by the SEC. The performance of investments will vary day to day in response to many factors. Asset allocation strategies are subject to the volatility of the financial markets, including without limitation that of the underlying investment options’ asset class. An investment is subject to a high degree of risk, including the risk of loss of an investor’s entire investment, and diversification does not ensure a profit or guarantee against a loss. Nothing contained herein is considered an offer to sell or a solicitation of any offer to buy any securities.

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