As we wrap up 2025, we’re closing the books on a year that delivered strong markets and a few surprises along the way.
More importantly, the trends taking shape now will help guide the decisions we make together in 2026.
Today, we discuss:
- How the markets performed in 2025.
- Why the Fed is likely to cut rates again.
- Where the job market is showing quiet signs of stress.
- What GDP growth and corporate earnings suggest for 2026.
2025 Market Review: Better Than Average
It’s been another impressive year for the stock market.
Year-to-date, we’ve seen growth of about 16.5%, following a strong 24% gain in 2024.
For perspective, the market usually averages around 8% to 10% each year, so we’re well ahead of the curve.
The one major bump we faced was a steep (but short-lived) drop in April when new tariffs were announced. This created a lot of uncertainty. Companies that rely heavily on global suppliers, like Walmart, saw their stock dip instantly.
In anticipation of the tariffs first mentioned in February, Walmart’s stock had already begun its decline from a high of $105 per share. When the tariffs were officially announced in April, the stock dropped further from $89 to a low of $82 per share, but it bounced right back. It’s currently trading strong at $115 per share, driven by people looking for better deals and the company’s leadership in online shopping and delivery.1
The good news is that many companies have adapted to the new tariffs.
For example, Walmart has successfully shifted a great deal of its product sourcing from China to India and Southeast Asia, including Vietnam and Thailand.
Ultimately, the tariffs caused uncertainty, but the market bounced back strongly.
Let’s switch gears now, and talk about three financial projections and key themes for 2026…
#1—Continued Rate Cuts
The Fed has a tough job: they must balance keeping inflation near their 2% target (now about 2.8%) while also ensuring the job market stays strong.
This balance is currently fragile.
To counteract the current risks in the economy, the Fed will likely continue to cut interest rates both in December and in early 2026. These cuts aim to lower borrowing costs, give the job market a lift and restore consumer confidence.
As long as the job market doesn’t weaken too fast, these cuts should help maintain steady economic conditions throughout 2026.
Related: We took a closer look at the delicate balancing act of rate cuts in our recent post, Today’s Economy: What’s Actually Going On?
#2—Labor Market Fragility
A key risk to the economy right now is the pressure placed on jobs, with the primary labor market weakness being concentrated in job cuts at small businesses.
This development will likely continue in 2026.
Signs of this trend were apparent in the November 2025 ADP report, with Reuters reporting an unexpected decline in private payrolls. (ADP processes payroll for 1 in 6 workers in the U.S.)2
This data suggests that while big company layoffs make headlines, the real pressure is happening quietly: small businesses are cutting jobs and offering fewer openings.
Read the full Reuters article here: US private payrolls post largest drop in more than 2-1/2 years in November.3
This pressure can create a dangerous self-fulfilling prophecy, consisting of a three-part cycle:
- Small businesses cut jobs due to uncertainty.
- People who are worried about losing their jobs start spending less money.
- The consequent slowdown validates the initial fear, making the prophecy self-fulfilling.
Keep in mind, small businesses are the main source of new jobs.
According to the U.S. Small Business Administration Office of Advocacy, “The U.S. contains 36.2 million small businesses, which account for almost 46% of private sector employment [share of employees]. From March 2023 to March 2024, U.S. small businesses created approximately 9 out of every 10 net new jobs.”4
If this massive engine pulls back on hiring or starts laying off, the overall job market quickly loses its critical source of new growth.
Two Other Points to Consider:
- The low 4.4% unemployment rate doesn’t yet reflect what’s happening on the ground. Small business layoffs usually take a few months to show up in data, and the recent government shutdown added an extra delay. We’ll see some clarity when the November jobs report is released in mid-December.
- We’ve yet to see any broad, hard data (enough to say there’s a clear trend) reflecting the real labor efficiency gains that artificial intelligence (AI) is expected to create. Up until now, the evidence we do see is largely anecdotal.
#3—Moderate Economic Growth
Most analysts’ forecasts for 2026 show U.S. economic growth ranging from 1.8% to 3.2%.
Even at the low end, a growing economy generally makes things easier because there’s more “pie” to go around for everyone.
This projected growth is supported by strong corporate earnings and by the fact that the tariffs didn’t lead to the severe economic damage many feared back in April. Remember, market sentiment also drives growth.
Finally, the housing market could provide a significant lift to the economy.
If the Fed continues to cut rates in 2026, it should cause interest rates and mortgage rates to keep coming down—possibly falling into the 5% range (optimistic but plausible). This could encourage more people to buy homes.
When the housing market picks up, it creates a ripple effect across the entire economy: demand increases for repairs, furniture, appliances and other home improvement projects, which in turn boosts thousands of businesses.
Lastly, on the investment side, several major banks are forecasting a 10% to 12% return for the stock market next year. As always, these are just estimates, but they reflect a generally healthy outlook for corporate earnings and valuations as we head into 2026.
Sincerely,
–David Bunker, Financial Advisor & Licensed Fiduciary
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This communication was prepared with financial writer Sharron Senter’s assistance, based on interviews with David Bunker, a financial advisor and licensed fiduciary.
Sources:
1: Nasdaq.com, Walmart Inc. Common Stock (WMT), nasdaq.com/market-activity/stocks/wmt/historical
2: adp.com
3: Reuters, US private payrolls post largest drop in more than 2-1/2 years in November, reuters.com/business/us-private-payrolls-unexpectedly-decrease-november-adp-says-2025-12-03
4: U.S. Small Business Administration Office of Advocacy, New Advocacy Report Shows the Number of Small Businesses in the U.S. Exceeds 36 million, advocacy.sba.gov/2025/06/30/new-advocacy-report-shows-the-number-of-small-businesses-in-the-u-s-exceeds-36-million