2025: The Year of Extreme Volatility, More in 2026?

As 2025 began, the S&P 500 was on the heels of its strongest back-to-back yearly performance since the 1990s. Wall Street was cautiously optimistic about the prospect of further gains. However, in late January, stocks tumbled after a Chinese tech startup (DeepSeek) unveiled an AI chatbot with stunning capabilities but at a much lower cost. This led to concerns that Silicon Valley was pouring unnecessary amounts of money into AI companies. Markets quickly looked past the news and reclaimed gains as investors doubled down on bets that US companies were poised to win the race for superior AI technology. Stocks began to sell off again in late February as trade tensions escalated, culminating in the Liberation Day tariffs in April, which threatened to disrupt global trade and created significant economic uncertainty.

Even with the additional volatility and global uncertainty, the U.S. stock market continued to climb, reaching record highs throughout the year. In fact, the S&P 500 hit 39 new highs in 2025 powered by numerous factors, including: the economic slowdown forecasted by many on Wall Street that never materialized, tariff exemptions and trade deals that mitigated inflationary effects, the AI infused capital-spending boom of epic proportions, robust corporate earnings that were much better than expected, comprehensive tax reform through the One Big Beautiful Bill Act (OBBBA), and an accommodative Federal Reserve. Domestic equity markets ended the year on a high note with the S&P 500 tacking on its third consecutive year of double-digit returns, again shrugging off any headwinds.

As we enter 2026, many concerns persist. Inflation remains elevated, job growth has stalled, unemployment has risen, equity valuations are still rich, another possible government shutdown looms, and geopolitical risks continue. On the other hand, fiscal and monetary policies are quite supportive. Lower interest rates are anticipated, and economic stimulus from OBBBA is expected to help both consumers and businesses.

The question is: Where do we go from here? Corporate earnings growth in 2026 is forecasted to be quite strong at 13-15%, significantly higher than the 10-year average of 8.5%. Economic growth in 2026 is also projected to be higher than in 2025. As we commemorate our 250th anniversary, there is still much to celebrate, even if continued volatility is anticipated. As one of the most famous investors of all time, who recently retired, Warren Buffett once said, “Never bet against America.”.

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.