December 2025 and Full-Year 2025 Market Review

Fidelity Bank – Wealth Management

Market Recap – December 2025 and Full-Year 2025

William J. Fennie III, CFA

December closed out a year of resilience and recalibration for global markets. U.S. equities ended the month higher, supported by a third consecutive Federal Reserve rate cut and optimism for a resilient economy in 2026. The S&P 500 gained 1.8% in December, bringing its full-year return to 17.88%, while the Russell 2000 gained 0.66% for the month and 12.79% for the year, as small caps rebounded strongly in the second half. Growth stocks led early in 2025 but ceded ground to value in Q4, resulting in a more balanced style performance for the year.

International equities posted mixed results in December, with MSCI EAFE up 1.1% and MSCI EM down -0.6%, but both delivered strong annual gains of 32.03% and 34.29%, respectively, as global investors embraced easing inflation and improving growth prospects outside the U.S.

Fixed income markets capped a strong year with another positive month. The 10-year Treasury yield ended December near 3.95%, down from 4.30% in September, as the Fed’s cumulative 75 basis points of cuts and moderating inflation drove bond prices higher. The Bloomberg U.S. Aggregate Bond Index returned +0.25% in December and +7.30% for 2025, marking its best year since 2020.

Commodities were mixed in December: gold rose 1.9%, extending its annual gain to more than 60%, while crude oil slipped 1.8%, finishing the year down by about 6% amid supply adjustments and slowing demand. Natural gas ended the year higher, supported by seasonal demand and export strength.

Equity

December reinforced the year’s dominant themes: resilience in U.S. large caps, a late-year rotation into value, and strong global participation. The S&P 500’s 17.88% annual gain reflected steady earnings growth and optimism around AI-driven productivity, despite valuation concerns in technology late in the year. Small caps staged a comeback, with the Russell 2000 up 12.79% for 2025, aided by easing financial conditions.

International equities outperformed U.S. markets for the first time in several years. MSCI EAFE gained 32.03%, while MSCI EM surged 34.29%, driven by a weaker dollar and improving macro conditions in Asia and Latin America.

Fixed Income

Bond investors enjoyed a strong rebound in 2025 after two challenging years. The Fed’s pivot from restrictive policy to gradual easing supported Treasuries and credit markets. The 10-year Treasury yield fell to 3.95%, while high-yield spreads tightened to multi-year lows. The Bloomberg U.S. Aggregate Bond Index posted +7.30% for the year, reversing prior losses and underscoring the benefits of duration exposure during a rate-cutting cycle.

Real Assets

Commodities delivered divergent outcomes in 2025. Gold surged more than 60%, its strongest annual gain since 1979, driven by geopolitical uncertainty, falling real yields, and robust demand for inflation hedges, while oil declined about 6%, pressured by slowing global demand and ample supply. Real estate investment trusts ended the year modestly higher, aided by lower rates and improving sentiment in rate-sensitive sectors.

Macroeconomics & Policy

2025 was a year of transition for monetary policy and economic growth. Inflation moderated from the start of the year to near 2.7% by December, while unemployment ticked up to 4.6%, signaling cooling labor conditions. The Federal Reserve delivered three 25-basis-point cuts, lowering the target range to 3.50%–3.75%, and emphasized a data-dependent approach heading into 2026. Globally, central banks diverged: the Bank of England held rates steady, while the Bank of Japan cautiously tightened policy.

Despite headwinds early in the year, markets embraced a narrative of disinflation and policy support, resulting in strong returns across equities and fixed income. Looking ahead, investors will weigh the durability of growth against lingering structural challenges, including fiscal constraints and geopolitical risk.

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December 2025 Market Review is intended solely to report on various investment views held by Fidelity Deposit & Discount Bank and is distributed for informational and educational purposes only and is not intended to constitute legal, tax, accounting, or investment advice. Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. Fidelity Deposit & Discount Bank does not have any obligation to provide revised opinions in the event of changed circumstances. All data is provided by Bloomberg Finance, LP and Morningstar Direct. We believe the information provided here is reliable but should not be assumed to be accurate or complete. Data, if not otherwise noted, is as of 12/31/2025. References to specific securities, asset classes and financial markets are for illustrative purposes only and do not constitute a solicitation, offer or recommendation to purchase or sell a security. Past performance is no guarantee of future results. All investment strategies and investments involve risk of loss and nothing within this report should be construed as a guarantee of any specific outcome or profit. Investors should make their own investment decisions based on their specific investment objectives and financial circumstances and are encouraged to seek professional advice before making any decisions. Index performance does not reflect the deduction of any fees and expenses, and if deducted, performance would be reduced. Indexes are unmanaged and investors are not able to invest directly into any index.