US stocks rose again in 2025 after overcoming turbulence from tariffs and Trump’s fight with the Fed

The year 2025 was frighteningly good for investors.It was scary as the U.S. stock market plunged to several historic declines due to concerns about everything from President Donald Trump’s tariffs to interest rates and a possible bubble in artificial intelligence technology. But in the end, it was a good year for anyone with courage to persevere through the fluctuations.

The S&P 500 index funds, which are the core of many savers’ 401(k) accounts, returned nearly 18% in 2025 and hit an all-time high on December 24. It was the third year in a row with large returns.Here’s a look at some of the surprises that have shaped the financial markets along the way:

Rate shocksTrump delivered the biggest surprise on Liberation Day in April, when he announced a sweeping set of tariffs that were tougher than investors expected.

It immediately led to concerns about a possible recession and rising inflation. The S&P 500 fell nearly 5% on April 3, marking its worst day since the 2020 COVID crash. The next day, yields fell 6% after China’s response raised fears of a trade war.

The impact of the tariffs extended beyond the stock market. The value of the US dollar fell and fear even shook the US Treasury market, considered perhaps the safest in existence.

Trump finally halted his tariffs on April 9 after seeing the U.S. bond market getting “nauseated,” as he put it, sending relief through Wall Street. Since then, Trump has struck deals with countries to reduce his proposed tariffs on their imports, calming investors’ nerves.

Wall Street rose during a remarkably quiet summer, thanks to euphoria surrounding artificial intelligence technology and strong corporate earnings reports. The market also got a boost from three interest rate cuts by the Federal Reserve.

Trade concerns can still wreak havoc on markets, and Trump only sent stocks soaring in October with the threat of higher tariffs on China.

Trump and the Fed

Another surprise was how hard and how personally Trump lobbied to get the Federal Reserve to lower interest rates.

The Fed traditionally operates separately from the rest of Washington, making its decisions on interest rates without having to submit to political whims. Such independence, the idea goes, gives the country the freedom to take unpopular steps necessary for the long-term health of the economy.

For example, keeping interest rates high could slow the economy and frustrate politicians who want to please voters. But it could also be the medicine needed to get high inflation under control.

With inflation stubbornly above the Fed’s 2% target, the central bank kept rates steady through August. This angered Trump – even though it was his own trade policies that raised fears of inflation.

Trump continually bashed Fed Chairman Jerome Powell and even nicknamed him “Too Late.” Their tense relationship came to a head in July when Trump accused Powell on camera of mismanaging the costs of a renovation of the Fed’s headquarters. Powell, in turn, shook his head.

While Wall Street loves lower interest rates, the personal attacks caused some unrest in the financial markets over the possibility of a less independent Fed. Powell’s turn as Fed chair ends in May, and the general expectation is that Trump will choose a replacement who is likely to cut rates.

Good, but not the first

“America First” did not apply to global markets. Even as U.S. stocks rose again by double digits, many foreign markets did even better.

The technology frenzy that has fueled gains for the S&P 500 and Nasdaq composite has sent Korea’s KOSPI higher in 2025, posting its biggest gain in more than two decades. South Korea is a technology hub and companies such as Samsung and SK Hynix have grown tremendously thanks to a focus on investments and developments in artificial intelligence.

Japan’s Nikkei 225 posted double-digit gains for the third year in a row. In addition to the focus on AI and the technology sector, gains were further boosted in October and November following national elections and plans for a $135 billion stimulus package.

The European markets also had a strong year. Germany’s DAX got a boost as the government announced plans to boost infrastructure and defense spending, which could boost economic growth in Europe’s largest economy.

The European Central Bank cut interest rates in the first half of the year, boosting financial markets across Europe. The French CAC 40 lagged behind, but still gained more than 10%.

The Ups and Downs of Crypto

Even with the reputation for volatility, cryptocurrencies still managed to surprise market observers.

Bitcoin fell along with most other assets early this year as Trump’s trade policies drove investors away from riskier investments.

The most widely used cryptocurrency roared back as the White House and Congress threw their support behind digital assets and the Trump family launched a number of crypto ventures. Retail investors joined in by pouring money into bitcoin ETFs, stock-like investments that allowed them to profit from the price rise without actually having to store bitcoin in digital wallets. Some companies, most notably Strategy Inc., made buying and holding crypto the core of their business and their shares soared.

Bitcoin peaked around $125,000 in early October. But almost as quickly, digital assets plummeted as investors worried that prices for bright stars like tech stocks and crypto had risen too high. As of Wednesday afternoon, bitcoin was trading around $87,700, down about 30% from its peak and down 6% from where it started the year.

What awaits us?

Many professional investors think that there will be more profit to be made in 2026.

That’s because most expect the economy to soldier on and avoid a recession. That should help U.S. companies grow profits, which stock prices tend to track over the long term. For companies in the S&P 500, analysts expect earnings per share to rise 14.5% through 2026, according to FactSet. That would be an acceleration compared to the expected growth of 12.1% for 2025.

But some of last year’s concerns will linger. Chief among these is the concern that all investment in artificial intelligence technology will not generate sufficient profits and productivity to make it worthwhile. That could keep the pressure on AI stocks like Nvidia and Broadcom, which were responsible for much of the market’s gains last year.

And it’s not just AI stocks that critics say are overpriced. Stocks across the market still look expensive after their prices rose faster than earnings.

Streets at Vanguard therefore estimates that U.S. stocks will only return about 3.5% to 5.5% annually over the next decade. Only twice in the past decade has the S&P 500 failed to meet this bar.

At Bank of America, strategist Savita Subramanian says the S&P 500 could rise less than half as much as earnings in 2026. She said this could be a result of companies reducing share buybacks, but also global central banks making fewer interest rate cuts.