Year-End Market Commentary
Dan Moskowitz at his office in Chatham NJ
By Dan Moskowitz, CFP® President and Chief Investment Officer
As we close out 2025, equity markets once again find themselves near record highs. This follows a year marked by solid economic growth, resilient corporate earnings, and a remarkable willingness by investors to look past uncertainty. Coming into this year, most expected a slowing economy, stubborn inflation, and meaningful volatility. Instead, the economy proved more durable, inflation continued to moderate, and risk assets generally moved higher.
Once again, the markets did what they so often do-they confounded expectations.
2025 in Review
Much like prior cycles, market leadership in 2025 was narrow. A relatively small group of large, high-quality companies drove a disproportionate share of returns, supported by strong balance sheets, pricing power, and continued enthusiasm around artificial intelligence and productivity-enhancing technologies. Meanwhile, many other areas of the market delivered far more modest results, despite growing revenues and profits.
Interest rates remained elevated relative to the last decade, reminding investors that the era of “free money” is firmly behind us. Yet higher rates did not derail the economy. Employment remained healthy, consumers continued to spend, and corporate profits-while no longer accelerating- proved far more resilient than feared.
Non-dollar assets had a spectacular year as evidenced by large returns for international stocks, bonds, and gold.
In many ways, 2025 reinforced a familiar lesson: markets climb a wall of worry, but they become most vulnerable when worry disappears.
Our Approach: Discipline Over Prediction
At times like these, we believe the most important investment decisions are often the least exciting:
Taking profits in positions that have grown well beyond their original target weight.
Rebalancing portfolios to prevent success from turning into unintended concentration risk.
Maintaining quality and liquidity, rather than chasing performance.
Respecting risk, especially when volatility has been unusually low.
Rebalancing is not a call on market direction; it is a risk management tool. It forces us to sell what has done well and reinvest where future returns may be more attractive. This discipline becomes especially important when markets have rewarded optimism for an extended period.
Looking Ahead to 2026
The consensus view entering 2026 is constructive: steady economic growth, easing inflation, and supportive financial conditions. While this outcome is certainly possible, markets have already priced in much of that optimism.
Will the markets prove the experts wrong this year? We see the following as potential risks to the bullish consensus.
Unrealistic expectations: Today, optimism about future market returns is widespread. Valuations around some AI best companies reflect best-case assumptions about growth, margins, and interest rates. History suggests that periods when “almost everyone” expects strong returns tend to deliver more muted and sometimes disappointing results.
Renewed shutdown risk: The November spending bill only temporarily ended the government shutdown, leaving markets exposed to renewed disruption and uncertainty if Congress fails to reach a longer-term deal in January.
Tariff uncertainty: The Supreme Court’s review of Trump-era tariffs creates potential volatility for trade-sensitive sectors and could materially affect U.S. relations with key trading partners.
Fed independence concerns: Public pressure on the Fed Chair selection raises concerns about central bank independence, which could unsettle bond markets and influence inflation and rate expectations.
Interest rates staying higher for longer than investors currently anticipate.
Geopolitical uncertainty, which rarely announces itself in advance.
None of these risks require dramatic headlines to matter. Often, markets struggle not because of recession, but because expectations were simply too high.
Final Thoughts
Long-term investing success is not about predicting the next correction or chasing the next trend. It is about process, patience, and prudence, especially when markets are generous.
Periods like the present when returns have been strong, and confidence is high are precisely when disciplined portfolio management matters most. Taking some profits, rebalancing risk, and staying focused on long-term objectives are not signs of pessimism. They are hallmarks of experience.
We remain optimistic about the long-term power of the global economy and capital markets. At the same time, we believe that respecting risk today improves the odds of achieving your goals tomorrow.
As always, we appreciate your trust and confidence. Please reach out if you would like to review your portfolio positioning or discuss how these themes apply to your personal financial plan.
Wishing you and your family a healthy, happy, and prosperous New Year.
Disclosure
Chatham Wealth Management is registered as an investment adviser with the SEC. SEC registration does not constitute an endorsement of the firm by the Commission, nor does it indicate that the adviser has attained a particular level of skill or ability.
Past performance may not be indicative of future results. All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment or strategy will be profitable for a client's portfolio.