Markets in a Minute - Thriving in Uncertainty
January 13, 2026
Kara Murphy, CFA
Key Takeaways
- The S&P 500 posted its third consecutive year of double-digit gains, although its 17% gain for 2025 was short of the 20% gain in the previous two years
- International markets returned to prominence, with emerging markets like South Korea, Mexico, and Brazil along with developed markets in the United Kingdom and Japan outperforming the US
- A variety of policies will drive market performance in 2026, including the Federal Reserve’s monetary policy and tariffs
The bull market run remained resilient for a third consecutive year. Despite significant external shocks stemming from tariffs, geopolitical uncertainty, and growing concerns about the sustainability of capital expenditures for AI, investors who stayed the course were rewarded.
In a volatile start to the year, the S&P 500 plummeted 19% in the first quarter only to finish the year up by nearly 17%. It’s only the fourth time since 1926 that the benchmark index has returned greater than 15% in three consecutive years. A growing economy and enthusiasm about the possibilities of AI more than compensated for significant headwinds.
While the market’s momentum is backed by strong fundamentals of double-digit earnings growth for a second consecutive year, valuations have become stretched to levels not seen since the dot-com bubble. In addition, 2025 marked the year when international markets took leadership as the MSCI Emerging Markets index posted a 33% gain, highlighted by outstanding years in South Korea, Brazil, and Mexico. Developed markets excluding the United States also performed well, with the United Kingdom and Japan posting returns of 33% and 25%, respectively.
With another excellent year of market returns behind us, it’s worth asking if the bull market can reach a fourth year? If so, where do we need to direct our attention? In this week’s Markets in a Minute, we unpack where potential opportunities may lie.
A Broadening Out of the Rally?
The 3-year bull market has been heavily driven by artificial intelligence broadly, and the Magnificent Seven specifically. However, in 2025, only two stocks in the esteemed Mag 7 group (Alphabet, Nvidia) outperformed the S&P 500. While Communications Services and Information Technology remained the top performing sectors, strength in Industrials, Utilities, and Financials indicate there are promising returns elsewhere.
All 11 sectors of the S&P 500 posted a gain in 2025, and forward earnings for the coming year are encouraging. For instance, the Materials sector is expected to grow earnings by 23% and Industrials by 15%.
Mag 7 vs. S&P 500 Returns in 2025
Past performance is not a reliable indicator of current or future results. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index. Source: Kestra Investment Management with data from FactSet.
International Markets Shine
After years of global dominance, the US stock market took a backseat to foreign markets in 2025. International equities benefited from lower starting valuations and US dollar weakness following Donald Trump’s implementation of broad-based tariffs. Across the globe, company earnings are expected to accelerate for the upcoming year thanks to the combination of heavy government spending in Europe, AI innovation in Asia, and loose monetary policy from central banks in emerging markets.
International Market vs. S&P 500 Returns in 2025
Past performance is not a reliable indicator of current or future results. Note: Returns are in USD. Indexes are unmanaged and not subject to fees. It is not possible to invest directly in an index. Source: Kestra Investment Management with data from FactSet.
The Fixed-Income Picture: Bonds Post Best Year Since 2020
Fixed income also staged a comeback, withthe Bloomberg US Aggregate Bond Index returning over 7% in 2025, its best year since 2020, helped by three consecutive rate cuts from the Federal Reserve to close the year.As the Federal Reserve drove shorter-term rates lower, long-term rates increased because of concern over increased government borrowing, sticky inflation, and slowing demand for Treasuries in the United States.
In addition to lower short-term rates, credit spreads tightened, benefiting high-yield bonds and corporates.By contrast, municipal bonds lagged, especially early in the year, due to increased supply and policy uncertainty. With credit spreads at historic lows and uncertainty around the Federal Reserve’s direction in 2026, there is heightened importance around diversification across sectors and duration.
Gold and Silver’s Parabolic Rise
In the last year, precious metals enjoyed outsized returns. Gold’s 65% rally in 2025 was its best in decades, and the momentum was fueled by strong demand from foreign central banks and retail investors alike. US dollar weakness in the aftermath of Liberation Day in April added additional fuel, and these factors could persist in 2026.
Not to be outdone, silver exploded at the end of the year to finish with a 160% gain on the year as an accessible and alternative option to gold. Silver’s role as a key ingredient in the AI data center buildout, along with its utility for companies across industrials, electric vehicles, and solar energy provides differentiated value to its precious metal peer.
Unpacking Chaotic Policy Developments
President Donald Trump’s second term in the White House has seen numerous historic shifts. In April, the enactment and subsequent softening of historic tariffs upended global markets and conventional trade policy. Heightened tariffs were one aspect of a number of foreign policy shifts that signaled a more multi-polar world.
After standing pat in the first half of the year, the Federal Reserve resumed its rate-cutting cycle in September. Three consecutive cuts at their final meetings of the year brought the federal funds target range to 3.50-3.75%in response to a weakening labor market. Disagreement within the committee has made it challenging to predict the course of interest rates in 2026 and the appointment of a new Fed Chair in June is likely to change the calculus.
Diversification is Protection Against Uncertainty
As 2026 begins, markets are balancing strong economic momentum with elevated valuations and unpredictable policy shifts. Despite these risks, broader sector participation, improving global leadership, and a healthier fixed-income backdrop create meaningful opportunities. In a year likely defined by change, disciplined diversification and a focus on fundamentals remain the best guide forward.
Invest wisely and live richly,
Kara
The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, and Bluespring Wealth Partners, LLC. The material is for informational purposes only. It represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. It is not guaranteed by any entity for accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was created to provide accurate and reliable information on the subjects covered but should not be regarded as a complete analysis of these subjects. It is not intended to provide specific legal, tax or other professional advice. The services of an appropriate professional should be soughtregarding your individual situation. Kestra Advisor Services Holdings C, Inc., d/b/a Kestra Holdings, and its subsidiaries, including, but not limited to, Kestra Advisory Services, LLC, Kestra Investment Services, LLC, and Bluespring Wealth Partners, LLC, do not offer tax or legal advice.