2025 Market Recap & 2026 Outlook – déjà vu all over again, AI leads the way

A Year Defined by AI, Trade Volatility, and Global Leadership

As we close out 2025, three major themes defined the markets last year: the continued boom in artificial intelligence, a brief but sharp tariff‑driven market correction, and the strong outperformance of international stocks over U.S. equities.

We have been following and writing on the AI story now for three years. You can revisit our early analysis here:
Something Is Happening: How Artificial Intelligence Is Impacting the Investing Landscape
https://www.retirement-professionals.com/something-is-happening-how-artificial-intelligence-is-impacting-the-investing-landscape

The Big Headlines of 2025

AI Continued to Drive Markets Higher

Artificial intelligence remained the dominant force in global markets. Massive investment and record corporate earnings pushed markets to new heights. Technology and communication services once again led the charge, marking the third consecutive year of AI‑powered growth.

Tariffs Sparked a Brief Crash—Followed by a Historic V‑Shaped Recovery

In April, sweeping U.S. tariffs and global retaliation triggered the worst two‑day selloff since the pandemic. The S&P 500 briefly dipped into bear‑market territory.
But as policymakers paused the most aggressive measures and negotiations progressed, markets rebounded sharply—ultimately reaching new all‑time highs.

We noted at the time this marked the fastest recovery in stock market history highlighting the benefits of staying invested because missing the best days will damage your returns (in one day alone the S&P 500 was up 9.5%!).

https://www.retirement-professionals.com/q2-2025-investment-update-july

International Stocks Outperformed the U.S.

For the first time in over a decade, international and emerging markets led global performance.

The MSCI World ex USA Index gained ~30%
The S&P 500 returned ~17%

A weaker U.S. dollar, attractive valuations abroad, and AI‑related growth in Asia all contributed to this shift.

Lessons From 2025

During the “tariff tantrum,” we followed the same disciplined playbook we always use during periods of volatility. If you’d like a refresher, revisit our framework here:
https://www.retirement-professionals.com/bear2019

Diversification Matters More Than Ever

International stocks and precious metals (gold and silver both surged) significantly outperformed U.S. large caps. A globally diversified portfolio proved its value once again.

Staying the Course Works

Investors who avoided emotional decisions during the April selloff were rewarded as markets recovered quickly.

Your returns can suffer if you are out of stocks during the best days in the market. Those best days often occur during volatile times (for example after stocks dropped following the tariff announcement on April 2^nd, a week later on April 9^th the S&P 500 stock index rose 9.5% in one day¹).

Rebalancing Is Essential

Market dislocations create opportunities. Rebalancing into temporarily depressed areas remains a reliable ways to capture future recovery.

Earnings Ultimately Drive Stock Prices

Despite political noise and valuation concerns, record corporate profits—fueled by AI investment—supported rising equity markets throughout the year.

Looking Ahead: 2026 Outlook

The consensus for 2026 is constructive but more moderate than the past few years. Analysts expect continued earnings growth, potential Federal Reserve rate cuts, and a broader rally beyond the mega‑cap leaders. At the same time, elevated valuations and geopolitical uncertainty may introduce volatility.

Key Themes for 2026

Earnings Growth: Strong profit expectations for 2026 and 2027, especially in AI‑related sectors.
Monetary Policy: Easing financial conditions and possible Fed rate cuts could support markets.
A Broadening Rally: More sectors are expected to participate beyond the “Magnificent Seven.”
AI Investment: Continued infrastructure build‑out and corporate spending remain major drivers.
Economic Strength: Global growth—particularly in the U.S.—and resilient labor markets provide a solid backdrop.

Risks to Monitor

High Valuations: Elevated P/E ratios require strong earnings follow‑through.
Inflation & Geopolitics: Persistent inflation and global tensions (including U.S.–China) may create volatility.
Political Uncertainty: Domestic and international political shifts could influence market sentiment.

Analyst Projections for the S&P 500

Most forecasts cluster around 7,200–7,500, implying 6–10% upside from current levels.

¹https://www.nasdaq.com/market-activity/index/spx/historical

The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of Lincoln Investment. These views are as of January 14, 2026 and are subject to change based on subsequent developments. The material presented is provided for informational purposes only. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Nothing contained herein should be construed as a recommendation to buy or sell any securities. As with all investments, past performance is no guarantee of future results. No person or system can predict the market. All investments are subject to risk, including the risk of principal loss. International investing involves special risks, including, but not limited to, currency fluctuations, economic instability, and social and political uncertainties, not typically present with domestic investments. The S&P 500 index is an index of 500 of the largest exchange-traded stocks in the US from a broad range of industries whose collective performance mirrors the overall stock market. It is not possible to invest directly in an index. The MSCI World ex USA Index captures large- and mid-cap representation across 22 of 23 Developed Markets countries excluding the United States. Price/Earnings (P/E) ratio is the price of a stock divided by its earnings per share that gives investors an idea of how much they are paying for a company’s earning power. High P/E stocks are typically young, fast-growing companies and may be riskier to trade than low P/E stocks.