Wall Street concluded a tumultuous 2025 trading year by finishing within striking distance of its all-time peaks, as ballooning technology valuations and the prospect of lower borrowing costs helped investors look past significant economic uncertainty.
A Year of Defiance for Major Indices
The benchmark S&P 500 index advanced by 16.4% over the course of the year, closing at 6,845.50 on New Year's Eve. This marked its third consecutive year of gains, though it represented the weakest growth of that trio. The index dipped by 0.7% during the final trading session of the year.
Other major US indices also posted strong annual returns. The Dow Jones Industrial Average climbed 13.4%, while the technology-heavy Nasdaq Composite rallied by an impressive 20.5% in 2025.
However, the standout performer among major global markets was London's FTSE 100, which enjoyed its most robust annual gain since 2009, surging 21.5% over the year.
Navigating Political Storms and AI Frenzy
The year was far from smooth sailing for markets. Investor sentiment was severely tested in the spring by former President Donald Trump's aggressive plans to impose sweeping US tariffs on global imports. Initial panic, however, gradually gave way to a stubborn market cynicism encapsulated by the "Taco" trade mantra: Trump Always Chickens Out.
While some tariffs were rolled back following concerns over their impact on American consumers and businesses, the average effective US tariff rate still climbed to its highest level since 1935. The economic landscape was further clouded by the longest US government shutdown in history, persistent inflation, a slowdown in jobs growth, and uncertainty surrounding Federal Reserve interest rate decisions.
Despite these headwinds, the market found powerful propulsion in the technology sector, driven by an insatiable investor appetite for companies linked to artificial intelligence. The entire Nasdaq index has skyrocketed by more than 110% since the launch of OpenAI's ChatGPT in November 2022.
The AI Engine: Nvidia's Stratospheric Rise
At the epicentre of the tech rally was chipmaker Nvidia. The company's stock price soared, propelling it to become the first public company in history to reach a $4 trillion market valuation during the summer. It finished the year up 34.8%, with a colossal valuation of $4.55 trillion.
The S&P 500's performance was heavily influenced by mega-cap tech stocks, including Nvidia, Apple, Microsoft, Amazon, and Alphabet (owner of Google and YouTube). This concentration has led to growing fears of a potential bubble in tech valuations.
Analysts generally anticipate a continuation of the current trend, issuing relatively optimistic forecasts for 2026. A further market climb would likely please President Trump, who regularly cites strong stock market performance as evidence of a robust economy under his administration.
The K-Shaped Reality Beneath the Rally
Yet, the headline-grabbing market gains tell only part of the story. A significant divide persists between Wall Street and Main Street. A Harris poll conducted for the Guardian revealed that twice as many Americans believe their financial security is deteriorating rather than improving.
Economists point to a "K-shaped economy," where the benefits of the stock market rally accrue disproportionately to the wealthy who hold investment portfolios, deepening inequality and leaving many ordinary citizens feeling left behind. As markets look to 2026, this disconnect between corporate valuations and public economic sentiment remains a critical challenge.
