November saw a decisive bullish rebound, with stocks, bonds, and precious metals surging despite economic uncertainty. Discover what fueled the comeback and what it means for investors.
The Santa Claus rally came in light to end the year for US stock investors. While the return for the S&P 500 was positive, it’s hard to get excited about 0.06% for the month. On the bright side, the index returned 17.88% for the year. The past three years have been one of the best return periods for the index since its inception.
S&P 500 Valuations and Growing AI Fatigue
Valuations continue to be a concern for the large cap index, and there seems to be some AI fatigue settling into the market. The hope and promise of AI are intersecting with investor demand for returns. When all investors hear about is massive spending to build infrastructure with no real idea of when these cash outlays will be rewarded, it is understandable that apprehension is growing.
AI Market Shifts: Google, DeepSeek, and Nvidia Volatility
Google’s new AI video creator built on their own tensor processing unit (TPU), plus new models being rumored for Chinese company DeepSeek have investors rethinking the entire AI landscape. It was just a year ago that DeepSeek came onto the scene in a major way in the US causing an 18% decline in Nvidia’s stock price in one day.
Sector Rotation Highlights Valuation Concerns
The valuations concerns could be seen by investors rotating into different sectors of the market. The financial and materials sectors led the market for the month, up 3.07% and 2.22%, respectively. Utilities and Real Estate led the declining sectors, down 5.11% and 2.18% for the month. Despite the unease with the AI trade from investors to end the year, Communications Services and Information Technology led all sectors for the year, up 33.55%, and 24.04%, respectively.
Mid-Cap and Small-Cap Stocks Struggle to Break Out in 2025
Midcap and small cap company stocks were not far off the returns of their larger peers, up 0.07% and down 0.05% for the month based off the S&P MidCap 400 and S&P SmallCap 600 indexes. 2025 was not the breakout year for these stocks. The Midcap index returned 7.50% and the small cap index returned 6.02% for the year. Uncertainty around trade and tariffs, increased wages and cost of doing business, and interest rates kept returns subdued for the year.
International Stocks Deliver Stellar Performance in 2025
Foreign markets enjoyed a stellar year capped off with 3.60% and 1.44% return in December for the S&P Developed Ex-US Broad Market Index (BMI) and the S&P Emerging BMI. The developed index came in at a whopping 35.49% return for the year, followed by the emerging market index return of 24.16%.
Dollar Weakness, Geopolitics, and Global Investment Opportunities
The drop in the value of the dollar helped returns of foreign stocks, but that was not the entire story. The change in alliances, trade deals, and general geopolitical uncertainty has led to countries prioritizing national security to the benefit of private companies around the globe. While it is difficult to anticipate foreign stocks outpacing the US consistently, there will likely be more opportunities in foreign stocks moving forward than we have seen in the past decade.
Fixed Income Markets Stabilize as Interest Rates Drift Lower
Fixed Income didn’t do much in the month, with the S&P US Aggregate Index dropping 0.01% for the month. However, for the full year the index returned 7.20%, as short-term rate cuts took effect and the 10-year treasury rate drifted lower throughout the year.
Federal Reserve Uncertainty Looms Over 2026 Interest Rate Policy
2026 should be an interesting year for interest rates. A new Federal Reserve Chair is coming in May, potentially reshaping the Federal Reserve (Fed). The bond market is still curious about how the Fed’s third mandate of moderate long-term interest rates will play out.
The recently announced $40 billion per month bond buying program to provide liquidity and maintain the balance sheet also adds to the intrigue. If this isn’t enough, the question of whether the President can fire Fed Governor Lisa Cook is still unresolved, and Stephen Miran is expected to continue filling a vacated seat until after the January 31st expiration of his appointment. All of these issue will affect how the Fed approaches interest rate policy in the future.
Precious Metals Dominate Asset Class Returns in 2025
Precious metals were the story of 2025, and December was no different. For the month the S&P GSCI Precious Metals index was up 4.45%, bringing the return for the year to 68.67%.
The last few days of 2025 were extremely volatile for precious metals as the CME Group hiked margin requirements to shake out speculators. Silver and platinum saw daily swings of 7%-9% for the last few trading days.
However, the futures market is not currently dictating the price of metals, the physical market is. This is spurred by central banks buying gold, and industrial uses of silver leading to extreme demand for solar panels, EVs, and data centers. The futures markets may lead to volatility, but at the end of the day, supply constraints are likely to continue pushing prices higher.
Year-End Investment Outlook: A Strong Finish Despite Volatility
Santa Claus may not have delivered everything on investors’ wish lists, but it wasn’t all coal in the stocking. Despite market pullbacks and volatility, 2025 proved to be a strong year for investors.
Investment Commentary by Jason Flores, CFA, CAIA – Executive Vice President & Chief Investment Officer at Central Trust Company.
At Central Trust Company, we continue to reassess the rapidly changing investment landscape for both risks and opportunities. If you would like to access our full monthly outlook and additional investment commentary, visit our Investments Learning Center. As always, if you have questions or concerns, please contact your Central Trust Company team. We are always ready to help.
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