U.S. stock markets surged to record highs in 2025, powering through tariffs, a brief government shutdown, and recurring concerns about a potential artificial intelligence bubble.
The S&P 500, a benchmark closely tied to most Americans’ retirement accounts, gained roughly 17% this year as of Dec. 23. While that marks a slowdown from the previous two years of gains exceeding 20%, the advance extended a powerful multiyear bull market.
As investors look ahead to 2026, the market’s strong performance presents a familiar dilemma: step back from increasingly expensive stocks or remain invested in the belief that the rally can continue.
Earlier this month, Morgan Stanley distilled its outlook into a single question: “Can the bull market endure?”
Analysts pointed to several forces driving share prices higher in 2025, including resilient corporate earnings, multiple interest-rate cuts aimed at supporting hiring and growth, and sustained enthusiasm for artificial intelligence.
Tariffs, which rattled markets in the spring, faded as a dominant concern later in the year. After new tariffs were announced on April 2, major stock indexes lost an estimated $3.1 trillion in a single day — the largest one-day decline since the onset of the COVID-19 pandemic. Days later, the suspension of many of those tariffs sparked one of the market’s biggest single-day rebounds on record.
“While tariffs remain a source of uncertainty, markets are pricing in limited disruption,” JPMorgan Wealth Management said in a note to investors last month.
Despite the broader rally, gains remained heavily concentrated among a small group of large technology firms known as the “Magnificent Seven”: Alphabet, Amazon, Apple, Meta, Microsoft, Tesla, and Nvidia. Concerns about the pace of AI adoption briefly weighed on those stocks in September, causing prices to wobble.
Momentum returned in November after Nvidia posted blockbuster earnings, easing fears about artificial intelligence spending. The chipmaker reported $57 billion in revenue over a three-month period — a quarterly record — underscoring strong demand for the semiconductors that power AI systems. Nvidia, now the world’s largest company by market capitalization, was up about 40% for the year as of Dec. 23.
Still, some analysts warn that the market’s reliance on AI-driven growth could become a vulnerability if tech companies struggle to translate massive capital investments into sustained profits.
“Equity markets may remain exuberant but face rising risks,” Vanguard said in a December outlook, citing artificial intelligence as a potential drag on future returns.
Additional uncertainties persist. Key U.S. economic indicators have sent mixed signals, clouding the outlook for 2026. Hiring slowed notably during the year, inflation remained roughly a percentage point above the Federal Reserve’s 2% target, and consumer confidence weakened even as overall economic growth proved resilient in the face of tariffs and elevated interest rates.
Together, those crosscurrents suggest that while the bull market has shown remarkable durability, the path forward may be increasingly volatile.
