If you had told a regular investor last January that the S&P 500 would climb nearly 18% despite a massive "Liberation Day" tariff scare and the highest market concentration in history, they probably would’ve called you a dreamer. Honestly, the stock market last 12 months has been a total wild ride. It wasn't just a straight line up. Not even close.
We saw a brutal April where stocks nearly entered bear market territory. People were panicked. The news was screaming about "Liberation Day" tariffs and trade wars that looked like they’d drag us back to the 1930s. But then, things shifted. By the time we hit the end of 2025, the S&P 500 was sitting at 6,926, and the Dow had cleared 48,000 like it was nothing. It’s been a year of extreme highs, stomach-churning lows, and a very specific obsession with Artificial Intelligence.
The April Cliff and the Great Recovery
The first half of 2025 was basically a stress test for everyone with a brokerage account. In early April, developed market equities fell 16.5%. It was fast. It was ugly. Investors were staring at a screen of red as the U.S. implemented tariff rates that felt like a punch to the gut for global trade.
But then the Federal Reserve stepped in.
They didn't just talk; they acted. Starting in September 2025, the Fed began a series of 25-basis point rate cuts. By December, the benchmark rate had moved down to a range of 3.50% to 3.75%. That was the fuel. Once the cost of borrowing started to dip, the "everything rally" took off. It’s kinda wild how much a few interest rate tweaks can change the mood on Wall Street.
Suddenly, the fear of a tariff-driven inflation spike started to fade. It didn't happen. Central banks managed to normalize rates without breaking the economy, and by the second half of the year, everyone was back to being a buyer.
Nvidia, AI, and the "Haves" vs. "Have Nots"
You can't talk about the stock market last 12 months without talking about Nvidia. It has become the sun that the rest of the market orbits.
Nvidia's stock was up about 34.8% by the end of 2025, which sounds great until you realize it was up over 43% earlier in the autumn. The company reported a record revenue of $57 billion in just one quarter (Q3 Fiscal 2026). They are printing money. However, a weird thing happened toward the end of the year: the rally started to broaden out.
For a long time, it was just the "Magnificent Seven" doing all the heavy lifting. In 2025, that changed. Only two of those seven actually outperformed the S&P 500. Investors started looking at "old school" companies that were using AI, not just the ones making the chips.
Where the Growth Actually Came From
- Communication Services: This sector was the absolute star, surging 33% in 2025.
- Information Technology: Not far behind at 24.4%.
- Industrials: This was the surprise. Because AI needs data centers and power, industrial stocks grew 18.7%.
- Small Caps: These guys struggled. The S&P SmallCap 600 only ended the year up 6%.
The gap between the mega-cap winners and the small-town losers is still huge. If you owned the big tech names, you’re feeling rich. If you were betting on small, domestic companies, you’re probably wondering why your portfolio didn't get the memo about the bull market.
What Most People Get Wrong About 2025
A lot of folks think the market is just a bubble waiting to pop because of high valuations. And yeah, the Price-to-Earnings (P/E) ratio for the S&P 500 hit 22x, which is the same as the 2021 peak. It's expensive.
But there’s a nuance here. In 2023 and 2024, the market went up mostly because people were willing to pay more for the same earnings (that’s "multiple expansion"). In the stock market last 12 months, the gains were actually driven by real earnings growth. Companies are making more money. S&P 500 earnings reached $275 per share in 2025, and analysts like those at Goldman Sachs and Oppenheimer expect that to hit over $300 in 2026.
It’s harder to call it a "bubble" when the companies are actually delivering massive profits.
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Looking Overseas: The Surprise Outperformers
While everyone in the U.S. was staring at their Robinhood apps, international markets were actually cleaning up. For the first time in two decades, the S&P 500 was technically one of the "worst" performing major equity markets when compared to some global peers.
- Korea: Korean equities returned over 100% in dollar terms. Total insanity.
- Emerging Markets: This group returned 34.4%, double what the U.S. did.
- Gold and Crypto: Gold topped $4,500 per ounce, and Bitcoin hit $120,000 before settling back down.
Basically, if you diversified outside the U.S., you did incredibly well. The weakening U.S. dollar in the latter half of the year helped boost those international returns for domestic investors.
The Reality of Your Portfolio in 2026
So, where does that leave us?
The Fed is still in an "accommodative" mood, meaning they want to keep the party going. But we have some big hurdles. There’s a new Fed Chair taking over in May 2026. That always makes people nervous. Plus, we’ve got midterm elections coming up, which usually means more volatility and more politicians yelling about the economy.
Inflation hasn't totally gone away, either. It’s "sticky" at around 2.6%. It’s not the 9% nightmare we had a few years ago, but it’s high enough that the Fed can't just drop rates to zero.
Actionable Steps for the Next 12 Months
- Check Your Concentration: If 50% of your portfolio is just three tech stocks, you’re playing a dangerous game. The market is starting to "rotate," meaning money is moving from the winners of 2025 into the laggards.
- Look at Mid-Caps: Quality mid-cap companies didn't get the same "AI hype" boost but have solid balance sheets. They are often better valued than the tech giants right now.
- Don't Ignore Bonds: With the 10-year Treasury yield expected to stay between 4.00% and 4.25%, fixed income is actually a viable way to make money again. It's not just a "safe" place to hide; it's a contributor.
- Watch the Labor Market: The unemployment rate ticked up to 4.3% recently. If that keeps climbing, consumer spending—which is the backbone of the U.S. economy—will start to wobble.
The stock market last 12 months proved that the "recession is coming" crowd was wrong again, but it also showed that you can't be complacent. The easy money from just holding Nvidia might be over. The next phase is going to require actually picking good companies, not just riding the AI wave.
Stay diversified, keep an eye on the Fed's spring meetings, and remember that even in a bull market, a 10% correction is perfectly normal. It’s not a crash; it’s just the market taking a breath.