by The Gould Asset Management Team
Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2025. The excerpt is posted here for the benefit of our blog subscribers.
Stocks Advance in Q4, Capping a Strong 2025
Global equity markets posted steady gains in Q4, with several major indexes finishing the year near record highs. International stocks outperformed US equities for the first time in several years, aided by a weaker US dollar, more attractive valuations overseas, and rotation away from US tech stocks. Solid earnings growth and expectations central banks would continue lowering interest rates in 2026 supported markets.
US large-cap stocks, represented by the S&P 500 Index, rose 2.7% in Q4 and finished 2025 up a strong 17.9%. Much of the year’s advance was driven by the technology and communication sectors tied to artificial intelligence. Within that group, Alphabet (up 65%) and Nvidia (up 39%) accounted for a disproportionate share of market gains, underscoring the continued influence of a relatively narrow set of leaders.
Sector performance in Q4 highlighted continued shifts in market leadership. Health Care was the strongest performing sector for the quarter, rising 11.7% and finishing the year up 14.6%, while Communication Services gained 7.3% in Q4 and 33.6% year-to-date. Technology posted more modest gains in the Q4 (up 2.3%) but delivered a strong 24.7% return for the year.
US mid and small cap stocks, measured by the Wilshire 4500 Index, were mostly flat in Q4, slipping 0.3%, but ended the year up a 11.9%. After keeping pace with large caps for much of 2025, smaller companies lagged late in the year as investors gravitated toward larger, more established firms amid economic uncertainty.
International stocks were among the strongest performers of 2025, extending gains in the fourth quarter. Developed-market equities rose 4.9% in Q4 and finished the year up 31.2%, while emerging-market stocks gained 4.7% for the quarter and 33.6% for the year. Returns were broad based, with strong performance across Europe, parts of Asia, and emerging markets, supported by improving economic momentum and attractive valuations. A weaker US dollar—down 7.2% in 2025—provided a tailwind for international investors.
Market volatility increased briefly during Q4 but remained contained overall. The VIX Index began the quarter around 16 and spiked above 26 in November amid a brief market sell-off and concerns around interest rate policy. Volatility eased to 15 by yearend, suggesting investors closed 2025 with a steadier outlook.
Fed Rate Cuts Support Solid Q4 for Bonds
US fixed income markets posted modest gains in the fourth quarter, capping the strongest year for bonds since 2000. Short-term Treasury yields continued to decline in Q4 as the Federal Reserve cut its benchmark rate twice by a total of 0.50%. Meanwhile, yields on longer-term Treasurys rose slightly as concerns about significant US fiscal deficits persist. As measured by the Bloomberg US Aggregate Bond Index, US bonds gained 1.1% in the final quarter of 2025, bringing the full-year return to 7.3%.
A sharp steepening of the US Treasury yield curve was a defining feature of both Q4 and 2025 overall. After beginning 2025 at 4.25%, the 2-year Treasury yield, which is highly sensitive to expectations for Federal Reserve policy, declined from 3.60% to 3.47% in Q4. In contrast, the 30-year Treasury yield rose from 4.73% to 4.84% during the quarter, leaving it little changed for the year.
Mortgage backed securities outperformed other fixed income sectors in Q4, returning 1.7% for the quarter and 8.6% for the year. High yield bonds also delivered strong results, gaining 1.6% in Q4 and 8.6% for the year. Long term Treasurys underperformed, returning -1.0% for the quarter and 4.2% for the year.
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