Fourth Quarter Market Overview
The fourth quarter capped off a exceptional yr, with worldwide shares main the way in which. U.S. large-cap shares (S&P 500) delivered 2.7% for the quarter, whereas worldwide developed markets (MSCI World ex USA Index) surged 5.2%. Rising markets (MSCI Rising Markets IMI Index) gained 4.7%, and U.S. small-cap shares (Russell 2000) rose 2.2%.
Bonds posted strong positive aspects within the quarter, amid the Federal Reserve’s charge cuts. The broad U.S. bond market (Bloomberg U.S. Combination Bond Index) rose 1.1%, whereas world bonds (Bloomberg World Combination, hedged to USD) gained 0.8%. The Federal Reserve minimize charges twice through the quarter—in October and December—bringing the federal funds charge to three.5%-3.75%, its lowest degree in three years.
Supply: Dimensional Fund Advisors. Information 9/30/2025 to 12/31/2025. Efficiency in USD.
Reflecting on 2025: A 12 months of Resilience Amid Uncertainty
We need to acknowledge the second we had been in final yr and the dissonance you will have felt. In case your lived expertise, the headlines you learn, and your portfolio’s efficiency didn’t appear to replicate each other, you weren’t alone. The challenges we confronted in 2025, from ongoing wars and humanitarian crises to political upheaval, had been actual and significant. On the identical time, many corporations within the inventory market continued to function and pursue progress. The world may really feel deeply unsettled, at the same time as markets and companies continued to carry out.
We noticed a robust yr of efficiency throughout markets. World equities (MSCI All Nation World IMI Index) gained 22.1% in 2025, with the S&P 500 contributing 17.9%. Chart 2 reveals sturdy efficiency throughout almost all asset lessons. US bonds delivered their greatest yr since 2020, with the Bloomberg U.S. Combination Bond Index gaining 7.3%.
Supply: Dimensional Fund Advisors. Information as of 12/31/2025. Efficiency in USD.
The yr noticed important volatility. Trump’s “Liberation Day” tariff announcement on April 2nd triggered extreme selloffs with markets dropping almost 20% over 34 days. But when tariffs had been paused, markets surged virtually 10% in a single day, kickstarting a swift restoration. The federal government shutdown from October to November turned the longest in U.S. historical past, reaching 43-days, but markets stored posting positive aspects. From April’s low via year-end, the S&P 500 rose about 39%.
Supply: FactSet, Avantis Traders. Previous efficiency isn’t any assure of future outcomes.
We regularly sound like damaged data, however historical past goes to indicate us that being a affected person investor proves wisest. An investor who checked portfolios month-to-month probably skilled much less stress than an investor who tracked each day actions, although each teams may have ended up with the identical end result.
The sample illustrated in Exhibit 3 of short-term turbulence smoothing out over longer horizons has repeated via historical past. 2025 strengthened this lesson: staying the course via turmoil can seize sturdy returns.
Worldwide Markets Lastly Had Their Second
Worldwide shares dramatically outperformed in 2025. The MSCI World ex USA Index gained 31.9%, beating the S&P 500’s 17.9% by the widest margin since 1993. Rising markets (MSCI Rising Markets Index) rose 33.6%.
This solutions the query we’d been listening to for years: “Why are we nonetheless invested internationally?” After years of U.S. market dominance, some traders questioned the worth of worldwide diversification. But 2025 demonstrated why this technique issues. U.S. corporations solely signify 60-65% of the worldwide inventory market worth. By sustaining publicity to worldwide markets, diversified traders captured this important outperformance.
Slightly than attempting to foretell which market will lead in any given interval, just about unattainable even for professionals, we advocate sustaining broad world diversification to seize returns wherever they happen. This strategy proved its price in 2025.
Worth vs. Development: Geography Made All of the Distinction
At Abacus, our funding philosophy features a tilt towards worth and small-cap shares the place doable, guided by educational analysis displaying these areas have traditionally offered greater anticipated returns. Worth shares are mainly corporations buying and selling at a reduction to their friends, whereas progress corporations commerce at a premium to their friends. The worth-growth story diverged by geography not too long ago. Within the U.S., progress continued to steer. However worldwide worth traders had been rewarded over the previous 5 years, as proven under. For shoppers with globally diversified portfolios tilted towards worth, this meant the worldwide portion of their portfolio probably outperformed.
Supply: Dimensional Fund Advisors. Efficiency in USD.
Supply: Dimensional Fund Advisors. Efficiency in USD.
AI, Huge Tech, and the Bubble Query
Know-how corporations commanded consideration once more in 2025. The Nasdaq superior 20.9%, and NVIDIA turned the primary firm to achieve a $5 trillion market cap. The “Magnificent 7” shares (Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon, and Tesla) remained influential, pushed by AI pleasure.
This progress fueled bubble considerations. Is AI the subsequent transformative expertise or an overvalued fad? Nobel laureate Eugene Fama, whose analysis informs our philosophy, notes that figuring out bubbles earlier than they burst is basically unattainable. Bubbles are solely obvious after the actual fact. Attempting to time your exit from a possible bubble typically means lacking positive aspects in case you’re unsuitable, or promoting too late in case you’re proper.
Traders who averted dramatic modifications based mostly on bubble fears benefited from sturdy returns throughout asset lessons. Whether or not AI represents a bubble or real transformation, or each at totally different instances, stays unknown for the time being.
2025 confirmed that diversified portfolios don’t have to chase or keep away from a handful of massive names. Know-how and AI innovation contact many companies, from healthcare utilizing AI for drug discovery to monetary corporations deploying machine studying. Broad diversification is designed to seize these winners wherever they emerge whereas mitigating focus danger.
What You Can Management as We Enter 2026
As we enter 2026, acquainted uncertainties stay: the political panorama, Federal coverage, expertise sector dynamics, world financial situations, and hundreds of others. Nonetheless, 2025 reminded us that predicting short-term actions typically proves counterproductive. Markets delivered sturdy returns regardless of sudden developments.
Whereas we are able to’t management market volatility or world occasions, we are able to management our funding strategy. Right here’s what we give attention to with you:
Stick to Your Lengthy-Time period Plan – Markets will typically trigger causes to fret. 2025 reminded us that staying invested via uncertainty, slightly than reacting to headlines, tends to reward affected person traders. Your Abacus advisor is right here that will help you preserve perspective when market turbulence tempts you to deviate out of your plan.
Rebalance Strategically Throughout Volatility – Market swings can create alternatives to rebalance again to your goal allocation, doubtlessly shopping for low and promoting excessive. This disciplined strategy helped some traders navigate 2025’s April selloff and subsequent restoration. Your advisor and monetary workforce at Abacus might help establish these alternatives and execute rebalancing to assist maintain your portfolio aligned along with your objectives.
Align Your Portfolio with Your Values – As we’ve mentioned, guaranteeing your cash aligns along with your ideas is one thing you possibly can management. We provide values-aligned funding choices that display screen out industries like non-public jail operators (almost 90% of individuals in ICE custody are held in services run by for-profit, non-public corporations). A lot of our fund managers additionally actively have interaction corporations on materials points affecting long-term worth, from environmental impacts of AI infrastructure to simply transition methods at utilities. This stewardship work represents one other manner your investments might help drive optimistic change. Aligning your values extra deliberately inside your funding portfolio generally is a tangible approach to reduce the dissonance chances are you’ll be feeling on this second we’re in.
2025 strengthened timeless ideas: world diversification might help present helpful safety and alternative, short-term actions are unpredictable, and affected person, disciplined traders specializing in long-term objectives have a tendency to realize higher outcomes. As we navigate 2026, these classes stay our information.
Your Abacus advisor is right here to debate your funding technique, evaluate your progress towards your objectives, and assist to make sure your portfolio continues to align with each your monetary targets and what issues most to you.
