NEW YORK (AP) — It was an alarmingly good year for investors.
It was scary because the US stock market suffered several historic declines due to concerns about everything from President Donald Trump’s tariffs to interest rates and a possible bubble in artificial intelligence technology. In the end, however, it was a great year for anyone who had the stomach to endure the changes.
S&P 500 index funds, which sit at the heart of many savers’ 401(k) accounts, returned more than 18% in 2025 through Dec. 11, setting a record that day. It is his third consecutive year of big profits.
Here’s a look at some of the surprises that shaped financial markets along the way:
Tariff tremors
Trump pulled off the biggest surprise on “Liberation Day” in April, when he announced a sweeping series of tariffs that were harsher than investors expected.
It immediately triggered concerns about a possible recession and rising inflation. The S&P 500 plunged nearly 5% on April 3, its worst day since the COVID crisis of 2020. The next day, it fell 6% after China’s response raised fears of a tit-for-tat trade war.
The impact of the tariffs went beyond the stock market. The value of the US dollar fell and fear even shook the US Treasury market, which is considered perhaps the safest there is.
Trump finally paused his tariffs on April 9 after seeing the U.S. bond market “get restless,” as he put it, sending relief to Wall Street. Trump has since negotiated deals with countries to reduce proposed tariff rates on their imports, which has helped calm investor nerves.
Wall Street rose during a remarkably quiet summer thanks to euphoria around artificial intelligence technology and strong earnings reports from companies. The market also received a boost from three interest rate cuts by the Federal Reserve.
Trade concerns can still wreak havoc on markets, and Trump sent stocks soaring in October with threats of higher tariffs on China.
Trump and the Federal Reserve
Another surprise was how hard and personally Trump pushed to get the Federal Reserve to lower interest rates.
The Federal Reserve has traditionally operated separately from the rest of Washington, making its interest rate decisions without having to bow to political whims. That independence is thought to give it freedom to take unpopular measures that are necessary for the long-term health of the economy.
Keeping interest rates high, for example, could slow the economy and frustrate politicians seeking to please voters. But it could also be the medicine needed to control high inflation.
As inflation remained stubbornly above the Federal Reserve’s 2% target, the central bank kept rates steady through August. This drew Trump’s ire, even though it was his own trade policies that were raising fears about inflation.
Trump continually picked on Federal Reserve Chairman Jerome Powell, even giving him the nickname “Too Late.” Their strained relationship came to a head in July when Trump, on camera, accused Powell of mismanaging the costs of a renovation of the Federal Reserve headquarters. Powell, in turn, shook his head.
Although Wall Street loves lower rates, the personal attacks caused some unrest in financial markets due to the possibility of a less independent Federal Reserve. Powell’s turn as Federal Reserve chair is set to expire in May, and the widespread expectation is that Trump will choose a replacement more likely to cut rates.
Good but not first
“America First” did not extend to global markets. Even as U.S. stocks soared to another double-digit gain, many foreign markets fared even better.
The tech frenzy that helped drive gains in the S&P 500 and Nasdaq composite sent Korea’s KOSPI higher in 2025, enjoying its biggest gain in more than two decades. South Korea is a technology hub and companies such as Samsung and SK Hynix have emerged amid the focus on investments and advances in artificial intelligence.
Japan’s Nikkei 225 posted a double-digit gain for the third year in a row. In addition to the focus on AI and the technology sector, profits increased in October and November following national elections and plans for a $135 billion stimulus package.
European markets also had a strong year. Germany’s DAX received a boost when the government announced plans to increase infrastructure and defense spending, which could boost economic growth in Europe’s largest economy.
The European Central Bank spent the first half of the year cutting interest rates, which helped give a boost to financial markets across Europe. France’s CAC 40 lagged, up 10% through Monday.
The ups and downs of cryptocurrencies
Even with a reputation for volatility, cryptocurrencies managed to surprise market observers.
Bitcoin fell along with most other assets earlier in the year as Trump’s trade policies scared investors away from riskier investments.
The most widely used cryptocurrency came back with a vengeance as the White House and Congress threw their support behind digital assets and the Trump family launched a series of crypto companies. Retail investors joined in by investing money in bitcoin ETFs, stock-like investments that allowed them to profit from the rising price without having to store bitcoin in digital wallets. Some companies, notably Strategy Inc., made buying and holding cryptocurrencies the center of their business and their shares rose.
Bitcoin and reached a high of around $125,000 in early October. But almost as quickly, digital assets plunged as investors feared that the prices of bright stars like tech stocks and cryptocurrencies had risen too much. As of Monday afternoon, bitcoin was trading around $89,400, about 28% off the peak and 4% below where it started the year.
What’s ahead?
Many professional investors believe that further gains could come in 2026.
This is because most expect the economy to limp along and avoid a recession. That should help U.S. companies grow profits, which stock prices tend to follow over the long term. For S&P 500 companies, analysts expect earnings per share to rise 14.5% in 2026, according to FactSet. That would be an acceleration of growth from the 12.1% estimated for 2025.
But some of this year’s concerns will persist. Chief among them is the concern that all the investment in AI technology will not produce enough profits and productivity to make it worthwhile. That could keep pressure on AI stocks like Nvidia and Broadcom, which were responsible for much of the market’s gains this year.
And critics don’t just say AI stocks are too expensive. Stocks across the market still look expensive after their prices rose faster than earnings.
This leads Vanguard strategists to estimate that U.S. stocks could return only about 3.5% to 5.5% in annualized returns over the next 10 years. Only twice in the last 10 years has the S&P 500 failed to reach that bar, assuming this year ends without another sell-off.
At Bank of America, strategist Savita Subramanian says the S&P 500 could rise less than half as much as earnings rise in 2026. She said that could be the result of companies reducing share buybacks, as well as global central banks implementing fewer rate cuts.
__
Journalist Damian Troise contributed.
