Global markets opened 2026 with continued momentum, extending the exceptional performance that characterized 2025 as the strongest cross-asset rally since 2009. The synchronized rise across stocks, bonds, credit, and commodities has reinforced investor confidence, though questions emerge about the sustainability of such broad-based gains.

Exceptional Cross-Asset Performance

The year 2025 stood out not just for the strength of individual asset classes, but for their unusual alignment. This coordination delivered remarkable returns across multiple sectors:

Measured across global stocks, bonds, credit, and commodities, 2025 delivered the strongest cross-asset performance since 2009, a year marked by crisis-level valuations and sweeping policy intervention.

Current Market Leaders and Laggards

As of January 3, 2026, market performance shows continued sector rotation:

Top S&P 500 Gainers:

• Micron Technology: ₹315.42 (+10.51%)
• Western Digital: ₹187.70 (+8.96%)
• Lam Research: ₹185.06 (+8.11%)
• Teradyne: ₹207.56 (+7.23%)

Notable Decliners:

• AppLovin: ₹618.32 (-8.24%)
• Gartner: ₹237.03 (-6.04%)
• Palantir Technologies: ₹167.86 (-5.56%)
• Intuit: ₹629.46 (-4.98%)

The Diversification Challenge

The synchronized rise across asset classes has created what BlackRock's Jean Boivin terms a "diversification mirage." When assets meant to offset one another move in the same direction, portfolios become less protected than they appear. Returns accumulate, but the margin for error narrows significantly.

Financial conditions eased close to their loosest levels of 2025 by year-end, underscoring rising valuations and convergence of investor expectations around growth and artificial intelligence. Credit spreads tightened for a third consecutive year, leaving average investment-grade risk premiums below 80 basis points.

Market Dynamics and Volatility

Volatility declined sharply across markets during 2025. US bond-market volatility measures recorded their steepest annual decline since the aftermath of the financial crisis. This low-volatility environment supported the broad-based rally but also contributed to stretched valuations across multiple asset classes.

Commodities joined the advance, with gold reaching a series of record highs supported by central bank buying, easier US monetary policy, and a weaker dollar. The precious metals rally exemplified the broad risk-on sentiment that characterized the year.

Looking Ahead: Sustainability Concerns

Wall Street forecasts from more than 60 institutions show broad agreement that the same drivers remain in place: heavy AI investment, resilient growth, and accommodative policymakers. However, concerns focus on repeatability rather than rationality of the rally.

Carl Kaufman from Osterweis noted the challenge ahead: "We are assuming that the torrid pace of valuation expansion we have seen in some sectors is not sustainable nor repeatable. We are cautiously optimistic that we can avoid a major collapse, but fearful that future returns could be anemic."

Inflation remains the primary risk factor. While price pressures eased through much of 2025, energy markets or policy missteps could quickly reverse that progress, potentially disrupting the synchronized asset performance that defined the previous year.

The U.S. stock market delivered another exceptional year for investors in 2025, with the S&P 500 returning nearly 18.00% and achieving its third consecutive year of double-digit gains. Despite experiencing several historic drops due to concerns over tariffs, Federal Reserve policies, and artificial intelligence valuations, markets demonstrated resilience and reached record highs.

Final 2025 Performance and Market Resilience

The major indices concluded 2025 with substantial annual gains, overcoming significant volatility throughout the year. The S&P 500 set a record high on December 24, while all three major indices maintained their streak of strong performance.

The final trading session saw mixed performance, with the S&P 500 closing at 6,845.50 after declining 0.74% on the year's last day. Despite the weak finish, the annual performance marked the third consecutive year of substantial returns for major indices.

Tariff Turbulence and Market Recovery

President Trump's tariff announcements created significant market volatility, particularly following "Liberation Day" in April when sweeping tariffs more severe than expected were announced. The S&P 500 experienced its worst single-day performance since the 2020 COVID crash, plunging nearly 5.00% on April 3, followed by another 6.00% drop the next day amid fears of a trade war with China.

The tariff impact extended beyond equities, affecting the U.S. dollar and even the traditionally stable Treasury market. However, markets found relief when Trump paused tariff implementation on April 9 after observing bond market distress, subsequently negotiating agreements to lower proposed rates.

Trump's Federal Reserve Confrontation

A significant surprise emerged from Trump's aggressive lobbying for Federal Reserve interest rate cuts, challenging the central bank's traditional independence. With inflation remaining above the Fed's 2.00% target through August, the central bank maintained steady rates, drawing Trump's criticism despite his trade policies contributing to inflation concerns.

The tension between Trump and Fed Chair Jerome Powell reached a peak in July, with Trump giving Powell the nickname "Too Late" and publicly criticizing the Fed's headquarters renovation costs. Powell's term expires in May, with expectations that Trump will appoint a more accommodative replacement.

AI Technology and Sector Leadership

Artificial intelligence stocks drove much of 2025's market gains, with Nvidia advancing 39.00% year-to-date and becoming the first publicly traded company to achieve a $5 trillion market capitalization. Storage-chip manufacturers emerged as top performers, with companies like Micron Technology, Western Digital, and Seagate more than tripling in value.

The communication services index topped S&P 500 sector performance, powered by Alphabet's impressive surge and the broader AI technology rally.

Global Market Outperformance and Cryptocurrency Volatility

Despite strong U.S. performance, many foreign markets delivered even better returns. Korea's KOSPI enjoyed its biggest gain in over two decades, driven by technology companies like Samsung and SK Hynix benefiting from AI investments. Japan's Nikkei 225 achieved double-digit gains for the third straight year, while European markets also posted strong performance with Germany's DAX benefiting from increased infrastructure and defense spending plans.

Cryptocurrency markets experienced extreme volatility, with Bitcoin initially declining due to trade policy concerns before surging to around $125,000 in early October as the White House and Congress supported digital assets. However, Bitcoin subsequently declined approximately 30.00% from its peak, trading around $87,700 by year-end.

2026 Market Outlook and Expectations

Analysts remain optimistic about 2026 prospects, expecting continued economic growth without recession. S&P 500 companies are projected to achieve 14.50% earnings per share growth in 2026, accelerating from the estimated 12.10% growth in 2025.

However, concerns persist about artificial intelligence investment returns and overall market valuations. Vanguard strategists estimate U.S. stocks may deliver only 3.50% to 5.50% annualized returns over the next decade, while Bank of America suggests the S&P 500 could rise by less than half the rate of profit growth in 2026 due to reduced stock buybacks and fewer central bank rate cuts.