US stock market ends 2025 on a high note after volatile year

Market Performance - The S&P 500 index is projected to end the year up approximately 17%, marking the third consecutive year of double-digit gains [2] - The Nasdaq Composite index is expected to achieve a 21% gain, while the Russell 2000 index of smaller companies is about 12% higher year-to-date [2] - Major indexes rebounded quickly after initial declines due to trade tariffs, leading to new highs in stock prices [3] Economic Factors - Strong corporate earnings growth has been a significant driver of the stock market rally, particularly following the tariff-related volatility [6] - The US economy expanded at an annual rate of 4.3% in the third quarter, up from 3.8% in the previous quarter, indicating robust economic performance [16] - Concerns remain regarding the potential impact of Trump’s tariff policies and the rising unemployment rate, which reached 4.6% in November [17] Investment Trends - There is growing investor enthusiasm for AI spending, with major tech firms like Nvidia, Apple, Microsoft, Amazon, and Alphabet comprising nearly 30% of the S&P 500 [10] - Analysts note that corporate earnings growth is broadening beyond the tech sector, which may provide a cushion against potential valuation scrutiny in tech stocks [11] - Despite strong stock market performance, analysts at Vanguard predict annualized returns of about 3.5% to 5.5% for US stocks over the next decade, suggesting a more subdued outlook [13] Policy and Leadership Changes - The upcoming transition in Federal Reserve leadership is viewed as a significant uncertainty for investors, particularly regarding future monetary policy [19] - Trump’s pressure on the Federal Reserve to lower interest rates may influence the selection of the new chair, impacting market dynamics [19] - Analysts express concerns that policy risks are not subsiding, which could lead to volatility in early 2026 [18]