Fourth Quarter Market Assessment
The fourth quarter capped off a exceptional yr, with worldwide shares main the best way. U.S. large-cap shares (S&P 500) delivered 2.7% for the quarter, whereas worldwide developed markets (MSCI World ex USA Index) surged 5.2%. Rising markets (MSCI Rising Markets IMI Index) gained 4.7%, and U.S. small-cap shares (Russell 2000) rose 2.2%.
Bonds posted stable beneficial properties within the quarter, amid the Federal Reserve’s charge cuts. The broad U.S. bond market (Bloomberg U.S. Combination Bond Index) rose 1.1%, whereas international bonds (Bloomberg World Combination, hedged to USD) gained 0.8%. The Federal Reserve lower charges twice throughout the quarter—in October and December—bringing the federal funds charge to three.5%-3.75%, its lowest degree in three years.
Supply: Dimensional Fund Advisors. Information 9/30/2025 to 12/31/2025. Efficiency in USD.
Reflecting on 2025: A 12 months of Resilience Amid Uncertainty
We need to acknowledge the second we have been in final yr and the dissonance you might have felt. In case your lived expertise, the headlines you learn, and your portfolio’s efficiency didn’t appear to mirror each other, you weren’t alone. The challenges we confronted in 2025, from ongoing wars and humanitarian crises to political upheaval, have been actual and significant. On the identical time, many firms within the inventory market continued to function and pursue progress. The world might really feel deeply unsettled, at the same time as markets and companies continued to carry out.
We noticed a powerful yr of efficiency throughout markets. World equities (MSCI All Nation World IMI Index) gained 22.1% in 2025, with the S&P 500 contributing 17.9%. Chart 2 exhibits robust efficiency throughout practically all asset courses. US bonds delivered their greatest yr since 2020, with the Bloomberg U.S. Combination Bond Index gaining 7.3%.
Supply: Dimensional Fund Advisors. Information as of 12/31/2025. Efficiency in USD.
The yr noticed important volatility. Trump’s “Liberation Day” tariff announcement on April 2nd triggered extreme selloffs with markets dropping practically 20% over 34 days. But when tariffs have been paused, markets surged nearly 10% in a single day, kickstarting a swift restoration. The federal government shutdown from October to November grew to become the longest in U.S. historical past, reaching 43-daysbut markets stored posting beneficial properties. From April’s low by way of year-end, the S&P 500 rose about 39%.
Supply: FactSet, Avantis Traders. Previous efficiency isn’t any assure of future outcomes.
We regularly sound like damaged information, however historical past goes to indicate us that being a affected person investor proves wisest. An investor who checked portfolios month-to-month possible skilled much less stress than an investor who tracked every day actions, although each teams might have ended up with the identical end result.
The sample illustrated in Exhibit 3 of short-term turbulence smoothing out over longer horizons has repeated by way of historical past. 2025 strengthened this lesson: staying the course by way of turmoil can seize robust returns.
Worldwide Markets Lastly Had Their Second
Worldwide shares dramatically outperformed in 2025. The MSCI World ex USA Index gained 31.9%, beating the S&P 500’s 17.9% by the widest margin since 1993. Rising markets (MSCI Rising Markets Index) rose 33.6%.
This solutions the query we’d been listening to for years: “Why are we nonetheless invested internationally?” After years of U.S. market dominance, some buyers questioned the worth of worldwide diversification. But 2025 demonstrated why this technique issues. U.S. firms solely characterize 60-65% of the worldwide inventory market worth. By sustaining publicity to worldwide markets, diversified buyers captured this important outperformance.
Relatively than making an attempt to foretell which market will lead in any given interval, just about inconceivable even for professionals, we advocate sustaining broad international diversification to seize returns wherever they happen. This strategy proved its value in 2025.
Worth vs. Progress: Geography Made All of the Distinction
At Abacus, our funding philosophy features a tilt towards worth and small-cap shares the place attainable, guided by educational analysis exhibiting these areas have traditionally offered larger anticipated returns. Worth shares are principally firms buying and selling at a reduction to their friends, whereas progress firms commerce at a premium to their friends. The worth-growth story diverged by geography just lately. Within the U.S., progress continued to steer. However worldwide worth buyers have been rewarded over the previous 5 years, as proven beneath. For shoppers with globally diversified portfolios tilted towards worth, this meant the worldwide portion of their portfolio possible outperformed.
Supply: Dimensional Fund Advisors. Efficiency in USD.
Supply: Dimensional Fund Advisors. Efficiency in USD.
AI, Large Tech, and the Bubble Query
Expertise firms commanded consideration once more in 2025. The Nasdaq superior 20.9%, and NVIDIA grew to become the primary firm to succeed in a $5 trillion market cap. The “Magnificent 7” shares (Apple, Microsoft, Nvidia, Meta, Alphabet, Amazon, and Tesla) remained influential, pushed by AI pleasure.
This progress fueled bubble issues. Is AI the following transformative know-how or an overvalued fad? Nobel laureate Eugene Fama, whose analysis informs our philosophy, notes that figuring out bubbles earlier than they burst is basically inconceivable. Bubbles are solely obvious after the very fact. Making an attempt to time your exit from a possible bubble usually means lacking beneficial properties in the event you’re incorrect, or promoting too late in the event you’re proper.
Traders who averted dramatic adjustments primarily based on bubble fears benefited from robust returns throughout asset courses. Whether or not AI represents a bubble or real transformation, or each at totally different occasions, stays unknown in the intervening time.
2025 confirmed that diversified portfolios don’t have to chase or keep away from a handful of massive names. Expertise and AI innovation contact many companies, from healthcare utilizing AI for drug discovery to monetary corporations deploying machine studying. Broad diversification is designed to seize these winners wherever they emerge whereas mitigating focus threat.
What You Can Management as We Enter 2026
As we enter 2026, acquainted uncertainties stay: the political panorama, Federal coverage, know-how sector dynamics, international financial situations, and hundreds of others. Nonetheless, 2025 reminded us that predicting short-term actions usually proves counterproductive. Markets delivered robust returns regardless of surprising developments.
Whereas we will’t management market volatility or international occasions, we will management our funding strategy. Right here’s what we concentrate on with you:
Keep on with Your Lengthy-Time period Plan – Markets will usually trigger causes to fret. 2025 reminded us that staying invested by way of uncertainty, reasonably than reacting to headlines, tends to reward affected person buyers. Your Abacus advisor is right here that can assist you preserve perspective when market turbulence tempts you to deviate out of your plan.
Rebalance Strategically Throughout Volatility – Market swings can create alternatives to rebalance again to your goal allocation, probably shopping for low and promoting excessive. This disciplined strategy helped some buyers navigate 2025’s April selloff and subsequent restoration. Your advisor and monetary group at Abacus might help determine these alternatives and execute rebalancing to assist maintain your portfolio aligned together with your objectives.
Align Your Portfolio with Your Values – As we’ve mentionedmaking certain your cash aligns together with your rules is one thing you possibly can management. We provide values-aligned funding choices that display screen out industries like non-public jail operators (practically 90% of individuals in ICE custody are held in services run by for-profit, non-public firms). A lot of our fund managers additionally actively have interaction firms on materials points affecting long-term worth, from environmental impacts of AI infrastructure to only transition methods at utilities. This stewardship work represents one other method your investments might help drive constructive change. Aligning your values extra deliberately inside your funding portfolio generally is a tangible option to reduce the dissonance you might be feeling on this second we’re in.
2025 strengthened timeless rules: international diversification might help present invaluable safety and alternative, short-term actions are unpredictable, and affected person, disciplined buyers specializing in long-term objectives have a tendency to realize higher outcomes. As we navigate 2026, these classes stay our information.
Your Abacus advisor is right here to debate your funding technique, assessment your progress towards your objectives, and assist to make sure your portfolio continues to align with each your monetary aims and what issues most to you.
