Stocks wild ride in 2025 sets the stage for 2026

Economic Overview - The Federal Reserve faced challenges in balancing its dual mandate of low unemployment and low inflation, with unemployment rising to 4.6% in November 2025 from 3.4% in 2023 due to previous rate hikes [7] - CPI inflation increased to 3% in September from 2.3% in April before falling to 2.7% in November, indicating volatility in inflation rates [8] Stock Market Performance - The S&P 500 experienced a stark 19% sell-off from February to early April 2025, followed by a significant rally, ultimately gaining 16.4% for the year, marking its third consecutive annual double-digit return [8][11] - S&P 500 companies are predicted to report year-over-year earnings growth of 12.3% and revenue growth of 7.0% in 2025, contributing to the index's performance [10] AI Sector Growth - The AI sector transitioned from hype to reality in 2025, with hyperscalers spending an estimated $394 billion on AI-related technologies, a significant increase from approximately $210 billion in 2024 [14] - Top AI stock performers included Micron with a 239.1% increase, Palantir at 135%, and Western Digital at 282.3% [15] Washington Political Climate - The political landscape in Washington D.C. was tumultuous, with significant events including the signing of President Trump's One Big Beautiful Bill Act and a record 43-day government shutdown, which contributed to a 6% sell-off in the S&P 500 [22][23] - The uncertainty surrounding government policies and spending impacted investor sentiment and market performance [21][23] Precious Metals and Foreign Stocks - Gold and silver surged to all-time highs in 2025, with gold increasing by 62% and silver by 137%, driven by uncertainty and central bank purchases [26] - Foreign stocks outperformed U.S. stocks, with the Vanguard FTSE Developed Markets ETF and Vanguard FTSE Emerging Markets ETF rising by 30.6% and 22.1%, respectively [27] Sector Performance - Technology was the standout sector in 2025, with the State Street Technology Select Sector SPDR ETF returning 23.83%, while healthcare and industrials also performed well with returns of 12.52% and 17.73% respectively [29] - The State Street Health Care Select Sector SPDR ETF outperformed the technology sector ETF since June 30, returning 14.85% compared to 13.7% [28]