Hi All — Brian here. 

The numbers are in, so first, I’ll let them do the talking.

The tech-heavy Nasdaq Composite may have retreated by half a percentage point in December, but it finished 2025 up more than 20%. Perhaps predictably given the rise of artificial intelligence, the tech-heavy index outperformed its peers on the year. But AI’s tailwinds were not confined to the technology sector, and the proof is in the performance. The Dow Jones Industrial Average also gained 13.6% in 2025, while the S&P 500 returned 16.4% over the same period. 

Those are impressive numbers, especially in context. That’s the S&P 500’s third consecutive double-digit annual gain, after all. But what’s even more striking to me is what they aren’t. 

In January 2000, the Nasdaq had just capped a 102% surge for 1999, after rising 85% in 1998. 2025’s 20% rise, and 2024’s 24.9% gain before it, bear little resemblance to the final, furious two years of the dotcom bubble, before it decisively burst.

There’s plenty of reason to debate whether blue-chip stocks are overvalued today, or a comparatively bad deal for investors. But with the price-to-earnings ratios for Microsoft, Nvidia, and Apple at 33.7, 46.8, and 36.3, respectively, it certainly doesn’t seem like the leaders of this tech rally have reached the same “nosebleed valuations” seen ahead of that crash. On the eve of the dotcom collapse in March 2000, the 20 biggest companies on the Nasdaq had PE ratios approaching nearly 400.

Of course, past performance does not guarantee future results. As an increasing number of economists warned over the past year, overvaluation remains a concern. And a correction is within the range of outcomes, especially if tech stocks don’t meet the high expectations for robust earnings growth that is already priced into shares. 

On that note, consider Warren Buffett’s warning in late 1999 at an investor conference in Sun Valley, Idaho. The now-retired Wall Street legend pointed to a 17-year stretch in which the U.S. economy grew by nearly 400%, yet the Dow Jones Industrial Average returned less than 1% in those 17 years. 

How can stocks stay flat amid such a prolonged era of robust economic growth? Well, just ask Nvidia shareholders last quarter, who saw the stock fall 8% in the days after its Q3 earnings report. The catalyst? Substantial year-over-year net income growth of 65%… which was still well shy of expectations. 

It’s a reminder of how overvaluations can stack the deck against investors. And it’s an explanation for why the Nasdaq Composite sold off in the final two months of 2025, as fears of overvaluation took hold. That’s the story that isn’t told by its 20% annual gain. 

In short, the markets left ample room for both caution and optimism heading into 2026. Seeking the balance between both may be best practice for investors staring down another year of uncertainty. It’s a time to watch valuations closely, yes, but also to take the long view. Optimism earned its keep in 2025. Patience may earn it in 2026.

DECEMBER MARKET PERFORMANCE

DECEMBER MARKET SUMMARY

• The Bureau of Labor Statistics’ monthly jobs report showed that U.S. employers added just 64,000 jobs in December. That’s up from a sharp loss of 105,000 positions the month prior, but substantially lower year-over-year, signaling a continued slowdown in the labor market. Unemployment ticked up to 4.6%, a four-year high.

• The U.S. Federal Reserve cut interest rates by 25 basis points in its meeting held December 9-10, bringing rates to the 3.50%-3.75% range, as federal funds traders overwhelmingly expected.

• The Conference Board’s measure of consumer confidence fell for the fifth straight month in December, hitting 89.1, compared to November’s reading of 92.9. The expectations index, which measures consumers’ short-term outlooks for income, business, and labor market conditions, remained constant at 70.7.

• Consumer Price Index numbers released December 19 showed inflation slowing to 2.7% in November, lower than economists expected, and trending toward the Fed’s 2.0% target.

ONE BIG THING: Is the Labor Market Worse Than It Seems?

Markets won’t have to wait long to take the central bank’s temperature in 2026. The Fed is scheduled to announce its next interest rate decision at the Federal Open Market Committee (FOMC) meeting held on January 27-28. 

Investors are currently pricing in a roughly 80% chance that rates remain steady, per CME’s FedWatch tool. We’ll be watching see if that remains the case this Friday, January 9, when the jobs report for December is scheduled for release. But for now, we’re left wondering whether traders have fully priced in Fed Chair Jerome Powell’s belief that the monthly jobs numbers, as low as they are, might actually be an overestimate — to the tune of 60,000 jobs per month. 

Speaking at last month’s FOMC conference, Fed Chair Powell said that the average monthly job gain of 40,000 since April may actually be a 20,000 monthly average loss. And notably, he wasn’t referring to a single month or two, skewed by the effects of the government shutdown or some other anomaly. Instead, the central banker seemed to be suggesting a systemic overcount, which could theoretically leave this past month’s figure near a flatline. 

Whether or not the Fed Chair is right to be suspicious of the numbers, what matters for market observers is that he believes it. Should Powell hint that he remains more concerned about the labor market side of the Fed’s dual mandate, consensus around a rate cut in January could change in a hurry. 

Markets were denied a “Santa Claus rally” in December. But a pivot on interest rates could potentially give traders belated cause for cheer in January. 

FEATURED POST

How to Mitigate Sequence-of-Returns Risk in Retirement

Sequence-of-returns risk describes the elevated impact of market volatility in the early years of retirement. And as market uncertainty abounds and concerns of inflated tech valuations grow louder, it’s an increasingly key consideration today for high-net-worth investors nearing their golden years.

Here’s what you need to know →

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