Q4 2025 Market Commentary

The fourth and final quarter of 2025 came to a close on December 31^st, after a year full of uncertainty, shifting expectations around interest rates, and heightened political noise. Though markets faced significant volatility throughout the quarter, they did however demonstrate the ability to adapt, reinforcing the importance of staying focused on long-term objectives rather than reacting to the latest Trump news headline of the day.

Monetary policy remained a central theme throughout Q4 on both sides of the border. In October, the Bank of Canada reduced its policy rate by 25 basis points (bps) to 2.25%, with hopes to support economic activity and easing borrowing costs amid ongoing trade pressures [1]. The Bank then held its policy rate steady in December, signaling a cautious but supportive stance as conditions got better [2]. Additionally, the labor market improved over the quarter, with job gains pushing the unemployment rate to its lowest level since 2024 [2]. Strong labor demand, combined with greater clarity around the impact of tariffs, helped stabilize employment and ultimately improved confidence in Canada’s economy.

In the United States, economic conditions diverged somewhat from Canada. Entering Q4, the economy remained resilient, with GDP expanding at an annualized 4.3% in the third quarter, the fastest pace in two years and well above expectations [5]. As the year progressed, however, momentum began to cool. Job growth slowed and unemployment grew, reflecting the cumulative effects of restrictive monetary policy, while inflation remained above the Federal Reserve’s 2% target at the same time. Against this backdrop, the Federal Reserve delivered a final 25 bps rate cut late in the year, bringing the federal funds target range to 3.50%–3.75% to support market confidence and economic momentum, briefly fueling optimism for a year-end Santa Claus rally [3][4]. Looking ahead, the Fed is anticipating one additional rate cut in 2026 to support employment stability while continuing progress toward its inflation objective [4].

Political developments added another layer of uncertainty during the quarter. A record-long U.S. government shutdown, spanning from October 1 to November 12, 2025, dominated news headlines, delaying the release of major economic data, which heightened anxiety amongst Americans [7]. This uncertainty was reflected in November, when the University of Michigan Consumer Sentiment Index remained well below its long-term average, falling to 51.0. Such levels are typically associated with periods of economic stress, including the 1980 recession, the 2008 financial crisis, and the 2022 market downturn, underscoring growing concerns about potential negative impacts due to the shutdown on the broader economy [6].

From a market perspective, global markets delivered positive returns in the Q4, rounding out a strong year across most asset classes. U.S. stocks posted modest gains in Q4 of about 2.4%, but strong performance earlier in the year lifted total U.S. equity returns to roughly 17% for 2025. Large-cap stocks, particularly tech giants, led the market during the quarter, outperforming mid- and small-cap stocks. The S&P 500 rose 2.7% in Q4 and finished the year up about 16%, despite the sharp pullback in April. Although returns were lower than in the previous quarter, market volatility remained relatively low, with the largest decline limited to around 5% late in November [8].

Later in the quarter, markets also reflected on a historic leadership transition at Berkshire Hathaway. The Oracle of Omaha, Warren Buffet, announced his intention to step down as Chief Executive Officer, marking an end to one of the most influential investing tenures in history [9]. Greg Abel, who has overseen the company’s non-insurance operations [10], was appointed as his successor. Greg Abel, who has overseen the company’s non-insurance operations, was appointed as his successor. Buffett expressed strong confidence in Abel’s leadership, emphasizing continuity in Berkshire Hathaway’s culture and investment philosophy. He also confirmed that he will remain engaged with shareholders through his annual Thanksgiving messages [9]. At Mandeville, Buffets investment philosophy has long been one we look up to. His famous words continue to resonate “Rule number one: don’t lose money. Rule number two: never forget rule number one.” These principles remain deeply relevant as markets navigate through continued volatility, policy shifts, and geopolitical issues.

A Look Back at 2025

Looking back at 2025, three forces clearly shaped market and economic performance. First, tariff policy and renewed trade tensions drove sharp volatility early in the year, as sweeping tariff announcements triggered rapid selloffs, with the S&P 500 falling more than 10% in just three days [11]. While the initial shock unsettled markets, many investors ultimately viewed the drop as the perfect opportunity to add to their portfolios at discounted valuations. Second, the artificial intelligence boom emerged as a powerful driver of equity returns, lifting technology valuations and investment activity globally, with the information technology sector leading the S&P 500 and delivering returns of roughly 24% [13]. Finally, despite ongoing macro and geopolitical headwinds, markets demonstrated notable resilience. The S&P 500 recorded its third consecutive year of double-digit gains at approximately 16%, while the Nasdaq rose 20.36% and the Dow gained 12.97% [14]. Beyond equities, precious metals also posted exceptional performance, with gold up roughly 64% and silver surging 148%, supported by persistent inflation pressures, heightened geopolitical uncertainty, and increased central bank demand for gold [12].

2026 Outlook

Looking ahead to 2026, the global outlook is expected to be shaped by U.S. policy decisions and ongoing geopolitical tensions, according to J.P. Morgan [17]. U.S. GDP growth is projected at a solid 2.3%, supported by tax measures aimed at encouraging domestic manufacturing and strengthening corporate balance sheets in the first half of the year following the passage of the One Big Beautiful Bill Act (OBBBA) [16]. At the same time, trade uncertainty remains a key risk, particularly for Canada, as the upcoming review of the USMCA agreement could introduce volatility in cross-border trade and investment [15]. Meanwhile, AI-related growth continues to accelerate, especially within the memory and data storage industry, driven by rising demand for memory chips and storage solutions as AI focused data centre expansion accelerates [18]. All factors taken into consideration, investors will need to remain attentive to evolving macroeconomic and policy developments, adjusting strategies as necessary to navigate through both emerging opportunities and potential risks.

However, at Duane Francis Wealth Creation, we remain focused on growing our clients’ wealth through discipline, diversification, and a long-term perspective. By staying flexible and attentive to changing market conditions, as demonstrated throughout 2025, we help clients navigate uncertainty while remaining positioned to benefit from long-term market growth, so they don’t have to worry about reacting to every market move.

Source: S&P Capital IQ

Written by: David Renaud

Citations

1. Bank of Canada. (2025, October 29). Bank of Canada lowers policy rate to 2¼%. https://www.bankofcanada.ca/2025/10/fad-press-release-2025-10-29/
2. Reuters. (2025, December 10). Bank of Canada to keep rates steady at 2.25% after robust economic data bolsters bets for a long hold. https://www.reuters.com/world/americas/bank-canada-keep-rates-steady-225-after-robust-economic-data-bolsters-bets-long-2025-12-10/
3. Board of Governors of the Federal Reserve System. (2025, December 10). Federal Open Market Committee statement. https://www.federalreserve.gov/newsevents/pressreleases/monetary20251210a.htm
4. MarketWatch. (2025, December). Dow gains almost 500 points, S&P 500 ends shy of record high after Fed’s final rate cut of 2025 bolsters Santa Claus rally hopes. https://www.marketwatch.com/story/dow-gains-almost-500-points-s-p-500-ends-shy-of-record-high-after-feds-final-rate-cut-of-2025-bolsters-case-for-early-start-to-santa-claus-rally-53c15858
5. The Wall Street Journal. (2025, December 23). Global stocks rise as markets head toward year-end. https://www.wsj.com/finance/stocks/global-stocks-markets-dow-news-12-23-2025-7ecf6818
6. Federal Reserve Bank of St. Louis. (n.d.). University of Michigan: Consumer sentiment (UMCSENT). FRED. https://fred.stlouisfed.org/series/UMCSENT
7. Reuters. (2025, November 12). U.S. House votes to end longest government shutdown in history. https://www.reuters.com/legal/government/us-house-vote-deal-end-longest-government-shutdown-history-2025-11-12/
8. First Citizens Bank. (2025). Quarterly market review: Q4 2025. https://www.firstcitizens.com/content/dam/firstcitizens/pdfs/wealth/market-outlook/2026/q4-2025-quarterly-market-review.pdf
9. Buffett, W. E. (2025). Berkshire Hathaway shareholder letter. Berkshire Hathaway. https://prod-i.a.dj.com/public/resources/documents/berkshire-hathaway-buffett-letter-2025.pdf
10. Encyclopaedia Britannica. (n.d.). Greg Abel. https://www.britannica.com/money/Greg-Abel
11. Yahoo Finance. (2025). 8 charts show the dramatic fallout from Trump’s “Liberation Day” announcement. https://finance.yahoo.com/news/8-charts-show-the-dramatic-fallout-from-trumps-liberation-day-announcement-080053892.html
12. Sprott. (2025). Metals post strong returns in 2025. https://sprott.com/insights/metals-post-strong-returns-in-2025/
13. Novel Investor. (n.d.). Annual S&P sector returns. https://novelinvestor.com/sector-performance/
14. Reuters. (2025, December 31). Wall Street ends year lower but posts strong gains for 2025. https://www.reuters.com/business/us-stock-futures-inch-down-thin-trading-wall-street-eyes-yearly-gains-2025-12-31/
15. BNN Bloomberg. (2026, January 2). Market outlook: Forces driving Canada and U.S. economies in 2026. https://www.bnnbloomberg.ca/investing/market-outlook/2026/01/02/market-outlook-forces-driving-canada-and-us-economies-in-2026/
16. FinancialContent. (2025, December 26). 2026 stock market outlook: Navigating the “re-acceleration” and the year of the AI agent. https://www.financialcontent.com/article/marketminute-2025-12-26-2026-stock-market-outlook-navigating-the-re-acceleration-and-the-year-of-the-ai-agent
17. J.P. Morgan Global Research. (n.d.). Market outlook. https://www.jpmorgan.com/insights/global-research/outlook/market-outlook
18. Baystreet.ca. (n.d.). Why Micron, Seagate, and Western Digital shares soared. https://www.baystreet.ca/articles/stockstowatch/117537/Why-Micron-Seagate-and-Western-Digital-Shares-Soared