Stocks finished 2025 about where analysts expected them to be. But it was a bumpy road to get there.
A year ago, analysts predicted the market would rise steadily, economists projected interest rate cuts, and following President Donald Trump’s re-election, market watchers widely expected a pro-business policy environment that would benefit the economy.
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Twelve months later, the S&P 500 is up 16.4%, the Federal Reserve has cut interest rates by 0.75 percentage points, and although there are emerging signs of weakness and growing concerns about the cost of living for the country’s poorest, the economy appears to be in a reasonably okay place.
But, for investors and traders who have lived the market intensely over the last year, this has been far from a smooth and predictable trajectory. The S&P 500 limped to a 0.7% drop on the final day of the year, its fourth straight day of losses.
In the end, the rally basically boiled down to one big idea: that artificial intelligence will be a generational force sustaining the stock market, because of the scale of investment needed to build the infrastructure that powers it and the productivity gains expected from the technology.
“If the technology seemed to be doing well, the stock soared,” said Cindy Beaulieu, director of investments for North America at Conning. “If technology didn’t look so good already, then…”
A difficult start
The year began with concerns about inflation and the revelation that a Chinese company had developed competitive AI technology at a much lower cost than American companies were achieving.
Then came Trump’s tariffs. Announced on April 2, a broad package of tariffs on dozens of countries sent stock markets plummeting, with the S&P 500 falling more than 12% in a week.
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The erratic application of tariffs and fears that they would fuel inflation, hurt corporate profits and impact consumers left investors deeply uneasy.
The panicked reaction in the bond market pressured the government to quickly back down.
Tariff delays, Fed rate cuts and soaring technology stocks pushed the S&P 500 to new all-time highs every month from May through October.
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The increase ignored the downsizing of the federal civil service, Trump’s threats to restrict the Fed’s independence, concerns about the increase in public debt, mass deportations and challenges to the Judiciary and the government’s balance of powers.
Those concerns were masked by the relentless rise of companies on the AI front lines, masking a more modest year for other corners of the stock market. But the surge also raised fears that investors had gone too far in their bets.
“It looks pretty exciting,” said Kristina Hooper, chief market strategist at Man Group. “And I truly believe we are headed for a slowdown. My base case is a moderate recession in 2026.”
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AI-Stimulated Shooting
By one measure, more than 90% of economic growth in the first half of 2025 came from investments in computing equipment and software, something economists attribute to projects linked to the race to build data centers and stay in the AI race.
Seven of the top ten S&P 500 stocks in 2025 were driven by the bet on AI.
SanDisk, the digital storage company spun off from Western Digital in February, led the gains, rising more than 500%. Its former parent company came in second place, with an increase of almost 300%.
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The top 10 also included major government contractor Palantir Technologies; Lam Research, which produces equipment used by semiconductor manufacturers; and Comfort Systems, which provides mechanical, electrical, hydraulic and ventilation installation for data centers.
Three other big increases in 2025 followed other trends: Newmont, a gold miner, reflecting the strong rise in the precious metal; the Robinhood trading platform, tracking the increase in stock trading volume; and Warner Bros. Discovery, the target of an acquisition dispute between Netflix and Paramount.
The “Magnificent Seven” drive the market
But these companies, despite their meteoric rise, did not have the biggest impact on the index. This honor went to Nvidia, Microsoft and Alphabet, part of a group of technology companies known as the “Magnificent Seven”, which have driven the market upwards in recent years.
The group — Microsoft, Nvidia, Alphabet, Amazon, Meta, Tesla and Apple — each with its own AI ambitions, is up 25% overall for the year. Nvidia, whose semiconductors underpin the AI boom, rose nearly 40%.
Because of their gargantuan size, the performance of the “Mag 7” could dictate the direction of the S&P 500: consider that SanDisk’s 500% rise has pushed its market value to about $35 billion, compared to $6 billion previously.
Nvidia, with a much smaller percentage increase, increased its market value by more than US$1 trillion, to around US$4.5 trillion. Alone, Nvidia was responsible for 15% of the S&P 500’s total return in 2025, according to data from Howard Silverblatt, senior index analyst at S&P Dow Jones Indices.
“I don’t think people fully understand what it means to have Nvidia at $4 trillion and how powerful that is,” said Thorne Perkin, president of Papamarkou Wellner Perkin, an investment manager.
Other companies joined the fray. Broadcom rose 50% to a market value of US$1.6 trillion. AMD, Nvidia’s competitor, rose almost 80%, reaching a value of US$350 billion.
Gains from Palantir and Lam Research also impacted the broader index. Just like JPMorgan, the country’s largest bank, which rose 30% to US$880 billion in market value.
“For most people, including myself, these values are difficult to understand,” Perkin said.
What is the surge hiding?
Over the past three years, the “Mag 7” have been responsible for more than half of the S&P 500’s rise. Without them, the impressive 88% gain over that period would fall to 40%, according to Silverblatt.
This helped mask weaker performance in other areas of the market and raised concerns that investment portfolios were once again dependent on the performance of just a few companies — and heavily tied to sentiment about the promise of AI.
In recent months, a slump in some more speculative AI companies has also hit some market leaders. Nvidia, for example, has fallen nearly 10% since the end of October, and as that has happened, the market rally has cooled.
Optimistic investors see an opportunity as parts of the market that had been lagging gain traction as the AI rally slows.
Over the past month, for example, the best-performing sectors in the S&P 500 have been economic-sensitive financial and industrial companies, which have lagged the broader index throughout the year.
But analysts also see risks. This type of cyclical company depends much more on the ebb and flow of the economy as a whole, which is at a delicate point.
Add to that the looming Supreme Court ruling on the legality of government tariffs, the possibility of a new government shutdown, the appointment of a new Fed chairman, the weakening job market and the possibility of the “AI bet” losing steam, and there are “real vulnerabilities” heading into 2026, said Man Group’s Hooper.
Expectations among analysts in general remain positive. But not for Hooper. “There’s a lot that could go wrong,” he said.
c.2026 The New York Times Company
