2025 Year in Review: Market Insights, Investment Lessons, and What's Ahead for 2026

As we close the books on 2025, it's time to reflect on a year that tested investor resolve, challenged conventional wisdom, and ultimately reinforced timeless principles of wealth management. At Fox Hill Wealth Management, we've guided our clients through market volatility, policy shifts, and economic surprises, all while keeping our eyes firmly fixed on long-term financial success.

This year delivered no shortage of headlines: artificial intelligence breakthroughs that rattled tech stocks, tariff negotiations that kept markets guessing, and interest rate dynamics that defied historical patterns. Yet through it all, disciplined investors who stayed the course were rewarded. The S&P 500's resilience proved once again that patient, strategic investing beats reactive decision-making every time.

Let's look back at the defining themes of 2025 and what they mean as we head into the new year.

The AI Revolution: From Hype to Reality

The DeepSeek Disruption

Perhaps no single event captured 2025's market drama quite like the January revelation from Chinese AI company DeepSeek. Their announcement that they'd developed a large language model rivaling ChatGPT - for just $6 million instead of billions - sent shockwaves through the AI sector. Nvidia alone lost nearly $600 billion in market cap in a single trading session, and AI-focused companies saw valuations plummet by as much as 30%.

The market's initial panic reaction highlighted a critical investing principle: diversification matters. While AI technology remains a promising long-term opportunity, concentrating too heavily in any single sector exposes portfolios to significant short-term risks.

Interestingly, what initially appeared as bad news for AI investments may ultimately prove bullish for the sector. Lower development costs could accelerate AI innovation and adoption, reduce energy requirements, and democratize access to AI development. Sometimes market disruptions create opportunities rather than threats.

AI and Energy: The Convergence Opportunity

Throughout 2025, we tracked the fascinating intersection of AI growth and energy infrastructure demands. Goldman Sachs Research projected that data center power demand will surge 165% by 2030, requiring approximately $720 billion in grid spending. Tech giants Amazon, Microsoft, Meta, and Alphabet announced over $350 billion in data center investments for 2025 alone, with projections reaching $400 billion in 2026.

This created compelling investment opportunities across multiple sectors:

• Energy infrastructure and utilities positioned to build and modernize grid capacity

• Nuclear power's renaissance, including small modular reactors (SMRs) and the revival of facilities like Iowa's Duane Arnold plant

• Semiconductor efficiency and cooling technologies solving the power consumption challenge

• Secondary market data centers in regions with cheaper, more available power

The AI revolution isn't just about smarter software—it's about rebuilding the entire energy foundation of the modern economy.

Navigating Market Volatility with Long-Term Perspective

The Power of Staying Invested

Market turbulence tested investor nerves multiple times in 2025, from the AI sector shock in January to tariff-related uncertainty throughout the spring. Yet those who maintained discipline were rewarded. Despite temporary pullbacks, the S&P 500 showed remarkable resilience, demonstrating why time in the market beats timing the market.

We frequently reminded clients of Morgan Housel's insight from The Psychology of Money: building wealth depends more on understanding human psychology than mastering technical indicators. Missing just the 10 best trading days over a 20-year period cuts returns nearly in half. And here's the kicker - seven of the 10 best market days typically occur within two weeks of the worst days.

The Warren Buffett Lesson

Warren Buffett's announcement in May that he'd step down from Berkshire Hathaway after 60 years provided a powerful teaching moment. The most remarkable statistic? 96% of Buffett's $84.5 billion fortune came after his 65th birthday.

This underscores three vital lessons:

1. Start investing early - regardless of your age, the best time was yesterday; the second best is today

2. Don't interrupt compounding unnecessarily - stay invested for the long term

3. Embrace truly long-term thinking - Buffett's wealth accumulated over decades, not years

For younger investors and those feeling behind on retirement savings, this lesson is particularly powerful: it's never too late to start, and the power of compounding over extended periods is extraordinary.

Interest Rates and the Housing Market Puzzle

When Fed Cuts Don't Lower Mortgage Rates

One of 2025's most perplexing economic phenomena was the disconnect between Federal Reserve policy and mortgage rates. Despite the Fed implementing rate cuts, mortgage rates remained stubbornly high - even increasing at times.

The explanation lies in the 10-year Treasury yield, which influences mortgage rates more directly than the Fed's overnight rate. Strong economic performance throughout 2025 (GDP growth more than doubled initial 1.2% forecasts to reach 2.7%) kept Treasury yields elevated as investors reassessed assumptions about aggressive rate cuts.

This broke a pattern that had held since the 1980s, when Treasury yields reliably declined following Fed rate cuts. It's a powerful reminder that economic relationships can shift in unprecedented ways.

The "Golden Handcuffs" Effect

The housing market remained constrained by what we called the "golden handcuffs" effect. Homeowners who secured 2-3% mortgage rates in 2020-2021 had little incentive to sell and take on new mortgages at 7%+ rates. This created historically low inventory levels and kept home prices elevated despite higher borrowing costs.

For those feeling trapped by this dynamic, we explored creative solutions including:

• Home Equity Lines of Credit (HELOCs) to access equity without refinancing

• Multi-family property strategies for first-time buyers

• Geographic arbitrage for those with location flexibility

Home Depot's CEO confirmed what the data showed: only 3% of homes were turning over in 2025 - a historically low figure not expected to increase significantly in 2026.

Tax Policy Changes and Planning Opportunities

The "One Big Beautiful Bill"

President Trump's "One Big Beautiful Bill" signed on July 4th delivered the year's most significant tax policy changes, including:

Estate Tax Relief: Instead of the expected dramatic reduction in estate tax exemptions, Congress increased them to $15 million per person ($30 million for couples) and made them permanent. This eliminated the frantic "use it or lose it" mentality that dominated estate planning and provided unprecedented certainty for wealth transfer strategies.

Trump Savings Accounts: A game-changing program offering government-funded investment accounts for American children born between 2025-2028. Every eligible child receives $1,000 in seed money automatically invested in a low-cost U.S. stock index fund, with additional contribution limits of $5,000 per year from family and employers. Over 60 years at 7% returns, even the initial $1,000 could grow to nearly $58,000 without any additional contributions.

401(k) Alternative Investments: New rules opened 401(k) plans to alternative investments including cryptocurrency, private equity, and real estate—asset classes historically available only to wealthy investors and institutions. While implementation will take time and comes with additional complexity, this represents significant democratization of investment access for 90 million Americans.

Our 360-Degree Tax Mitigation Approach

For households earning over $200,000, taxes typically represent the single largest annual expense. Throughout 2025, we emphasized comprehensive tax strategies including:

• Account consolidation and household-level asset location

• Active tax-loss harvesting and direct indexing

• Strategic Roth conversion planning

• Multi-account rebalancing to avoid unnecessary taxable events

• Tax-efficient income generation strategies

• Social Security optimization coordinated with Medicare planning

Proper tax planning can save high-income households 2-4% annually in after-tax returns—compounding to hundreds of thousands or even millions over 20-30 years.

Holistic Wealth: Beyond the Balance Sheet

Health Is Wealth

One of our most important messages in 2025 was that true wealth extends beyond investment accounts. With 100 million Americans carrying medical debt totaling over $220 billion, we emphasized that investing in health today helps avoid costly healthcare expenses in retirement.

Simple habits like reducing sugar intake, moving your body just 15 minutes daily, and prioritizing dental care can save tens of thousands in future medical costs while improving quality of life. Healthy habits equal fewer health issues, which equals more money saved and a more secure retirement.

Retirement as More Than a Number

We challenged clients to think about retirement differently - not just as a financial milestone but as gaining control over your "W's": doing what you want, when you want, with whom you want, where you want.

This philosophy, influenced by Bill Perkins' Die with Zero and Morgan Housel's The Art of Spending Money, encourages strategic spending during your healthiest, most energetic years rather than endless accumulation. Memory dividends - the ongoing value from experiences and shared moments - compound in life satisfaction just as financial dividends compound in accounts.

Our Portfolio Positioning: Strategic Bets That Paid Off

Meta: From Market Pariah to AI Powerhouse

Our October 2022 purchase of Meta (then trading at 8-12 times earnings during its metaverse crisis) exemplified our contrarian, long-term approach. By the end of 2025, this position was up nearly 130% as the company successfully navigated its challenges and emerged stronger.

Meta's dominance across Facebook, Instagram, WhatsApp, and Threads—generating 99% of revenue from advertising at exceptional margins—proved resilient. AI improvements made their advertising even more effective, and their massive user-generated content library provided an enormous data advantage for training AI models without costly licensing deals.

Amazon: The Diversification Masterpiece

Our March 2023 Amazon investment (now up 116%) demonstrated the value of business diversification. Amazon's revenue streams span:

• Online stores (38%)

• Third-party seller services (24%)

• AWS cloud services (17%)

• Advertising (9%)

• Subscriptions (7%)

• Physical stores (3.3%)

This balance between high-volume, lower-margin retail and high-margin recurring revenue (AWS, advertising, subscriptions) creates what Bill described as a "Warren Buffett-like" dynamic - using retail cash generation to fund expansion into more profitable businesses.

Other Key Holdings

Our portfolio's performance in 2025 reflected strategic positioning in:

• Palantir: Up 70% in one month alone as AI adoption accelerated

• Nvidia: Despite DeepSeek volatility, positioned for long-term AI infrastructure growth

• Uber: Our analysis of their robotaxi strategy and diversified business model

• Nuclear and energy infrastructure plays capitalizing on AI's power demands

  
  

Family and Legacy Planning

Preparing the Next Generation

We emphasized the importance of early financial education, showing how children who begin investing at age 10 with just $100 monthly contributions could have over $1 million by retirement—versus less than $300,000 starting at age 30 with the same contributions.

Key family planning topics included:

• Essential steps for new parents: life insurance, 529 plans, healthcare coverage

• Teaching through investing: age-appropriate involvement in investment decisions

• Commission-based allowances versus traditional allowances to teach work-reward relationships

• College savings strategies balancing 529 plans with UTMA accounts
  

Estate Planning: The "Hit by a Bus" Scenario

We stressed that estate planning isn't just for the ultra-wealthy. Creating financial continuity for loved ones means:

• Ensuring both spouses understand the complete financial picture

• Developing comprehensive financial inventories

• Building trusted professional relationships

• Implementing simplified management systems

• Regular partnership reviews

Kirk Holmquest shared powerful stories of widows and widowers who successfully navigated this transition through proper planning - demonstrating that preparation transforms potential uncertainty into confidence.

Looking Ahead to 2026

Economic Outlook

As we enter 2026, several factors shape our economic outlook:

Inflation appears under control, with the PCE price index at 2.1% annually - tantalizingly close to the Fed's 2% target. Core PCE inflation dropped to 2.5%, suggesting underlying trends are moving in the right direction. This progress positions the Fed to maintain or continue modest rate cuts, though tariff impacts remain a wildcard.

The labor market remains healthy with unemployment at 4% - low by historical standards though slightly elevated from 2024 lows. Job growth continues at a sustainable pace, suggesting the economy can maintain expansion without overheating.

Treasury yields and market rates may continue defying historical patterns if economic strength persists. We're watching closely for whether the traditional relationship between Fed policy and longer-term rates reasserts itself or whether we're in a new paradigm.

Investment Themes for 2026

Several themes will likely dominate our investment approach:

The AI infrastructure buildout continues, with opportunities across energy, semiconductors, data centers, and cooling technologies. The DeepSeek disruption may actually accelerate adoption by reducing barriers to entry and development costs.

Energy transformation driven by AI demands will create long-term opportunities in utilities, nuclear power, grid modernization, and energy efficiency technologies.

Diversification remains critical as 2025's volatility demonstrated. While AI and technology offer exciting growth prospects, balanced portfolios with exposure across sectors, geographies, and asset classes better weather unexpected disruptions.

Alternative investments become more accessible through 401(k) plans, though we'll approach these opportunities carefully, weighing enhanced diversification against complexity and liquidity constraints.

Value opportunities may emerge if market volatility increases. Companies with strong fundamentals trading at reasonable valuations often outperform during uncertain periods.

Policy Considerations

The 2026 landscape includes several policy factors:

Tax law stability following the "One Big Beautiful Bill" provides unusual certainty for planning. The permanent estate tax exemptions and new savings vehicles create long-term opportunities for wealth transfer and accumulation.

Trade policy evolution will likely continue influencing markets. While tariff uncertainty created volatility in 2025, eventual clarity—whether through negotiations, exemptions, or implementation—should reduce one source of market uncertainty.

Healthcare policy changes may affect retirement planning considerations, making flexible strategies and adequate reserves even more important.

Housing Market Trajectory

The housing market's unique dynamics will likely persist into 2026. The "golden handcuffs" effect won't disappear quickly, meaning:

• Continued low inventory in many markets

• Sustained price support despite higher rates

• Growing interest in creative solutions (HELOCs, multi-family properties, geographic arbitrage)

• Potential opportunities if economic conditions shift significantly
  

Our Commitment to You

As we enter 2026, Fox Hill Wealth Management remains committed to:

Comprehensive, 360-degree planning that integrates investments, tax strategy, estate planning, and insurance into a cohesive wealth management approach.

Proactive communication keeping you informed of market developments, policy changes, and strategic opportunities without overwhelming you with short-term noise.

Disciplined, long-term investing that prioritizes your goals over market timing, maintains appropriate diversification, and positions portfolios to weather volatility while capturing long-term growth.

Personalized guidance recognizing that every client's situation, goals, and risk tolerance are unique. Cookie-cutter approaches don't build lasting wealth.

Holistic wealth perspective understanding that true wealth includes health, relationships, experiences, and time freedom - not just account balances.

Final Thoughts: The Principles That Endure

Reflecting on 2025, several timeless principles proved their worth once again:

1. Stay invested through volatility. Those who panicked and sold during temporary downturns missed subsequent recoveries. As Morgan Housel notes, short-term volatility that feels devastating at the moment becomes forgotten footnotes in long-term investment success.

2. Diversification protects portfolios. The DeepSeek shock reminded us why concentrated positions in even the most promising sectors carry risks. Balanced portfolios weather storms better than concentrated bets.

3. Time is your greatest asset. Warren Buffett's story isn't primarily about genius—it's about starting early and never stopping. The power of compounding over extended periods transforms modest savings into significant wealth.

4. Planning beats reacting. Clients with comprehensive financial plans, appropriate insurance, and clear strategies navigated 2025's uncertainties with confidence. Those without plans faced difficult decisions during stressful moments.

5. True wealth is about freedom. The ability to control your time, make choices aligned with your values, and support the people and causes you care about—that's what financial success ultimately enables.

Thank You

As we close out 2025, we're grateful for the trust you've placed in Fox Hill Wealth Management. Guiding your financial journey through markets, calm and turbulent, is a responsibility we take seriously and a privilege we deeply appreciate.

Looking ahead to 2026, we're optimistic about opportunities while remaining realistic about challenges. Whatever the year brings, we'll navigate it together with discipline, strategy, and an unwavering focus on your long-term financial success.

Here's to a prosperous 2026 for all of us.

If you'd like to discuss your 2026 financial strategy, review your portfolio positioning, or explore any of the topics covered in this year-end review, please don't hesitate to reach out. We're here to help you build and protect lasting wealth.

Fox Hill Wealth Management is a registered investment advisor. This content is for informational and educational purposes only and should not be construed as investment advice. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. Please consult with your financial advisor before making investment decisions.