As we approach the final weeks of 2025, it is time to reflect on a year that tested the patience of investors early on but ultimately rewarded those who adhered to a disciplined, long-term strategy. The "Year of Stabilization" I anticipated in January largely came to fruition, though the stability was actually quite volatile!
From the volatility of April to the interest rate relief we are finally seeing now in December, 2025 has underscored the primary tenet of my philosophy: diversification works.
Market Overview: A Year of Volatility and Fed Pivot
The defining narrative of 2025 was the central bank "pivot." After holding rates higher for longer than many expected in 2024, the Federal Reserve finally shifted gears. Just this week, the Fed announced a widely anticipated rate cut, bringing the target range for short term interest rates down to 3.50% – 3.75%.
However, the road to lower rates was paved with turbulence. We witnessed a dramatic, albeit short-lived, equity sell-off earlier in the year as markets struggled to digest the Trump Administration’s chaotic, and oftentimes nonsensical, tariff policies and renewed trade wars. This period of policy-driven whiplash introduced significant uncertainty, serving as a stark reminder of how political unpredictability can disrupt market fundamentals.
Despite these headwinds, the eventual monetary easing provided a tailwind for assets in the second half of the year, helping the economy stabilize without tipping into a recession.
Equity Markets: Resilience Amidst "AI Jitters"
Equities globally had a great year, though the drivers of return have shifted. The broad euphoria of 2023–2024 has matured into a more discerning market, where earnings and valuations matter.
- S&P 500: Up approximately ~16.5% year-to-date.
- Dow Jones Industrial Average: Up ~11.0% year-to-date.
- Nasdaq Composite: Up ~20% year-to-date.
- European Equities: Up ~31% year-to-date
- Emerging Market Equities: Up ~23% year-to-date
While the headline numbers are strong, they mask the drama of the earlier volatility when the S&P 500 dipped amid the trade concerns mentioned above and fears over new AI competition from China. The market regained its footing by summer, driven by the "Magnificent 7" tech stocks, though I am now seeing a healthy rotation into broader other sectors. It is also reassuring to see that ‘AI’ companies are getting punished by investors when results fall short of expectations. Investors are starting to demand returns on invested capital rather than excitement over hyped promises of limitless AI possibilities in the future.
Fixed Income: Bonds Provide Stability
For the first time in several years, high-quality bonds have acted as the stabilizer they are designed to be. As the Fed cut rates, bond yields fell, pushing bond prices higher.
- 10-Year U.S. Treasury Yield: Currently hovering around 4.15%.
- Core Bonds (Bloomberg U.S. Aggregate): Returned approximately 7% year-to-date.
Investors holding high-quality fixed income saw their portfolios cushioned during the policy-induced volatility earlier in the year and are now benefiting from capital appreciation as rates decline.
Commodities: A Tale of Two Assets
The divergence within commodities this year offers a perfect teaching moment regarding my investment philosophy.
Energy (Oil)
Oil has struggled this year, trading below $60/barrel. Despite geopolitical tensions, a global "glut" of supply and weakening demand from manufacturing hubs like China have kept a lid on energy prices.
Gold & The Productive Asset Philosophy
Gold was a standout performer in price action, surging to record highs over $4,260/oz. While this performance is notable, it brings to mind an old economic adage: In Roman times, one ounce of gold could purchase a high-quality toga and belt—essentially, a good men's suit. Today, at over $4,000, that same ounce of gold still buys a high-quality men's suit. (I have that one in black.)
This illustrates two critical points:
- Preservation: Gold is excellent at protecting purchasing power over very long periods; it keeps up with inflation.
- No Real Return: In over 2,000 years, gold has effectively provided a zero real return. It has not grown wealth; it has merely maintained it.
This is why I focus on productive assets—companies that take commodities as inputs and transform them into goods and services, and bonds that pay interest. I want your capital to grow and compound over time, not just tread water against inflation. I rely on stocks and bonds to build wealth.
Emerging Themes: Crypto
2025 was also a landmark year for cryptocurrency, characterized by the passage of the GENIUS Act in July, which provided some regulatory clarity. However, for the most part ‘crypto’ remains a solution in search of a problem to solve. The most promising, though still unproven, technology in crypto are stablecoins. However, with short term interest rates being cut and every major bank looking to issue their own stablecoin the business model of pure play stablecoin issuers is in doubt.
The price of Bitcoin reached an all-time high above $126,000 in October, driven by highly leveraged capital flooding into the instrument. The poster child of the leveraged crypto trade is Strategy, ticker MSTR, a ‘bitcoin treasury’ company. That is a fancy way of saying the company doesn’t actually do anything other than raise capital by selling stock to the public and buying Bitcoin. Why the buyers of this stock would not just buy Bitcoin directly for themselves is inexplicable. For the last two years the value of MSTR massively exceeded the value of its Bitcoin holdings, allowing it to keep issuing stock and buying more Bitcoin. But as investors we must always remember two things:
1. The basic law of finance is immutable; capital seeks assets that provide a return.
2. The x-axis (i.e. time on a price chart) is inexorable.
The price of MSTR has crashed along with its premium valuation, squeezing leverage out of the crypto ‘ecosystem’ and correcting Bitcoin’s price to roughly $90,000 today, though I would argue Bitcoin’s value remains a total mystery. Crypto will continue to be volatile, its price determined by hype, FOMO and momentum. In other words, a place for speculation, not investment.
Looking Ahead to 2026
As we close the book on 2025, the outlook for 2026 is one of cautious optimism. The "soft landing" appears to be holding, and the cost of borrowing is coming down.
My strategy remains unchanged:
- Ignore the noise: I invest in companies, not headlines or political posturing.
- Focus on Productive Growth: I prioritize assets that generate cash flow and innovation over simple stores of value.
- Stay Diversified: 2025 proved that a balanced mix of globally diversified stocks and bonds is the most reliable path to growing your wealth and meeting your financial goals.
The end of the year/beginning of a new year is a wonderful time to review your portfolio and discuss any questions you have. Please contact me to schedule a time that is convenient for you.
I wish everyone a wonderful holiday season and a healthy and prosperous New Year!
Sumit Kumar, Greenwich CT