Global markets in 2025 reflected a continued transition away from the extraordinary post-pandemic environment toward a more normalized, though still constrained, economic and investment backdrop. While visibility was often limited and volatility persisted in pockets, investors were ultimately rewarded for patience, diversification and discipline as inflation eased, growth decelerated unevenly and financial conditions gradually adjusted to a higher cost of capital.

Rather than delivering a dramatic inflection point, 2025 reinforced a subtler theme: durability. The global economy slowed but did not stall. Inflation moderated but did not disappear. Markets recalibrated repeatedly but did not crash. In many respects, the year was defined less by what broke than by what held together.

Monetary Policy, Inflation and Economic Growth: Cooling Without Cracking

Macroeconomic conditions in 2025 were characterized by deceleration rather than disruption. In the United States, economic growth slowed from the above-trend pace of prior years but remained positive, with real GDP expanding at approximately 2%. The labor market cooled gradually and by design, hiring slowed, wage growth moderated and unemployment drifted modestly higher, yet layoffs remained contained and jobless claims stayed historically low. This “no-hire, no-fire” equilibrium allowed demand to cool without triggering broader economic stress.

Inflation continued to ease, though the signal was often obscured by noise. Headline US inflation declined toward the 2.5-3.0% range by year-end, while core measures proved stickier, largely due to lagged shelter components and measurement distortions. Wages, inflation expectations and price trends outside of housing all pointed toward a system steadily losing its ability to re-accelerate, even as month-to-month data occasionally sent mixed signals.

Monetary policy reflected this more balanced, but constrained, environment. The Federal Reserve delivered modest, insurance-style rate cuts during the latter half of the year and then stepped back, emphasizing patience and data dependence over urgency. By year-end, the federal funds rate stood at 3.64%, supportive but no longer stimulative in the way investors had grown accustomed to in the prior decade.

Importantly, monetary policy faded as the dominant driver of markets. Fiscal dynamics, supply considerations and long-term productivity themes (particularly AI-related investment) played a growing role in shaping asset prices. Long-term interest rates reflected this shift, with the 10-year US Treasury yield generally trading between 4% and 5%, influenced as much by debt trajectories and issuance needs as by near-term Fed expectations.

In short, the economy cooled, but it did not crack. Growth slowed unevenly, inflation eased with caveats and policy became less theatrical and more contextual as the year progressed.

Political and Geopolitical Backdrop: Constraint Over Crisis

Political and geopolitical developments once again influenced market sentiment in 2025, though more as a source of constraint than as an immediate catalyst for disruption. In the United States, the first year of a new administration brought renewed debate around fiscal priorities, trade policy and regulation, contributing to uncertainty but not wholesale shifts in economic trajectory.

Globally, elections, ongoing conflicts and evolving trade relationships continued to shape investor behavior, particularly in energy markets, defense spending and global supply chains. Although at times producing short-term, acute shocks, these forces in aggregate functioned as persistent frictions, reinforcing a world characterized by tighter margins for error across monetary, fiscal and trade fronts.

For investors, the dominant risk was not imminent recession or crisis, but reduced policy flexibility. Elevated debt levels, widening deficits and geopolitical fragmentation limited the ability of policymakers to respond aggressively to future downturns, placing a premium on balance-sheet strength, diversification and selectivity.

Market Performance Across Asset Classes

Equity markets delivered solid, but more differentiated, returns in 2025 following the outsized gains of prior years. Global equities, as measured by the MSCI All Country World Index (ACWI), gained approximately 22% for the year.

US equities continued to perform well, with the S&P 500 returning 17.9%. Growth stocks outperformed again, with the Russell 1000 Growth Index up 18.6%, while value stocks delivered competitive returns, with the Russell 1000 Value Index gaining 15.9%. Small-cap stocks lagged but still produced positive results, with the Russell 2000 Index returning 12.8%.

International equities produced strong, but uneven, results. The MSCI ACWI ex US Index (ACWX) rose 32.4%, while the MSCI Emerging Markets Index gained 33.6%, though dispersion across regions and countries remained wide. For example, South Korea surged 97.6%, while Saudi Arabia declined 8.3% and within Europe, Spain gained 77.1% compared to Denmark’s 10.1% advance.

Fixed income reasserted its role as a stabilizer. The Bloomberg US Aggregate Bond Index returned 7.3%, while intermediate investment-grade municipal bonds gained approximately 4.8%.

Real assets and alternatives contributed meaningfully. The S&P Global Natural Resources Index rose nearly 30%, the S&P Real Assets Index gained 15.6% and hedge fund strategies delivered steadier outcomes, with the HFRX Global Hedge Fund Index returning approximately 7%.

Oil prices remained volatile, finishing the year meaningfully down from where they started. West Texas Intermediate (WTI) Crude Oil swung as high as $80.04 and as low as $55.27, before ultimately settling at $57.42 per barrel, down from $71.72, where it started the year. Gold rose meaningfully amid fiscal concerns, geopolitical uncertainty and ongoing central bank demand, starting the year at approximately $2,625 per ounce and ending the year at approximately $4,319 per ounce.

Valuations and Market Leadership

Valuations continued as a focal point as 2025 progressed. US equities continued to trade at a premium, with the S&P 500 ending the year at 22x forward earnings, above long-term averages. Developed international markets, by contrast, traded at 16x forward earnings, reflecting lower growth expectations and greater political and fiscal uncertainty.

While valuation gaps alone are rarely sufficient catalysts, the combination of more attractive starting multiples and improving earnings momentum supported stronger relative performance outside the United States. These dynamics reinforced the importance of global diversification and avoiding over-reliance on narrow sources of market leadership.

Looking Ahead

As we move into 2026, the investment environment appears more balanced, but also more constrained, than at any point in the last decade. Growth is slower but steadier. Inflation is easing but uneven. Policy support exists, but margins for error are thinner.

Below are three key themes we are monitoring as we move into 2026:

• Fiscal Sustainability and The Effectiveness of Monetary Policy: With government debt levels elevated across developed markets, how will fiscal policy influence long-term growth, inflation expectations and capital markets? With fixed income markets more focused on government debt levels, will central banks be able to meaningfully move interest rates with monetary policy?

• Geopolitical Fragmentation: How will ongoing geopolitical tensions and shifts in global trade relationships impact supply chains, corporate profitability and long-term investment returns?

• Artificial Intelligence: What second-order effects will emerge creating new implications for markets and investments? Will we continue to see meaningful shifts in capital expenditure? What are the implications for labor markets?

At Oxford, we remain focused on what we can control: disciplined portfolio construction, prudent risk management, thoughtful diversification and alignment with our clients’ long-term objectives. We do not attempt to predict short-term market moves or sudden policy shifts. Instead, we seek to build portfolios that are intended to be resilient across a range of market outcomes, with the goal of supporting our client’s long-term investment objectives.

For those of you who are our clients, we thank you for the trust you place in Oxford Financial Group, Ltd. We remain committed to being careful stewards of your capital and thoughtful partners in the years ahead.

Oxford Financial Group, Ltd. is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. The information provided is for general informational purposes only and should not be considered investment, tax, or legal advice. Opinions are those of the author and are subject to change based on market, regulatory or economic conditions. Forward-looking statements are opinions and/or estimates and are not guarantees of future results. Data and opinions are based on sources believed to be reliable, including unaffiliated third parties such as Oxford Economics, but their accuracy cannot be guaranteed. Past performance is not indicative of future results. See important disclosures and disclaimers at https://ofgltd.com/home/disclaimers. OFG-2601-12