As we ring in another new year, we reflect on 2025, a year marked by elevated market volatility driven mainly by heightened government policy uncertainty. Despite these headwinds, equity markets finished the year with healthy double-digit gains, while bonds delivered their strongest returns since 2020. This marks the third consecutive year of solid equity performance, an outcome that underscores the market’s resilience even in the face of multiple concerns.
While clarity around trade policy seems to be improving, other significant risks remain: the continued expansion of federal debt and speculation surrounding the independence of the Federal Reserve. President Donald Trump has been explicit in his desire for the Fed to significantly lower interest rates. However, the bond market has been pushing back, signaling growing concerns over the long-term consequences of overly easy monetary policy. Although short-term rates have declined meaningfully since September 2024, long-term yields have remained stubbornly elevated. This divergence is notable. At this stage of a Federal Reserve easing cycle, declining long-term bond yields are typically a result. This suggests to us that bond investors are questioning the Federal Reserve’s resolve to return inflation back to its 2% target, with inflation currently running stubbornly closer to 3%.
Additional evidence of this skepticism can be seen in commodities markets. Gold, silver, and several key industrial metals are trading at or near record highs. In our view, the combination of rising federal debt—approaching $40 trillion—persistent inflation, and concerns over central bank independence represent a challenging backdrop that could test financial markets in the months and years ahead.
These observations are not to be construed as a forecast of an inevitable stock market decline. Rather, they reinforce the importance of investment discipline. A continued focus on valuation, risk management, and thoughtful portfolio construction remains essential. Gold equities were part of a diversified approach that may have helped mitigate portfolio volatility. In accounts with gold hedges, gold exposure may have contributed to performance. Moreover, despite the S&P 500 nearly doubling over the past few years, we see many opportunities ahead. A meaningful number of index constituents have delivered muted returns and offer investors attractive entry points as we head into what may be a more complex market environment.
As always, we will maintain a disciplined approach to portfolio management, taking profits when warranted and deploying capital selectively and deliberately. We enter the year ahead with focus, confidence, and a commitment to successfully navigating the challenges ahead.
The Tax Man Cometh – (And We are Here to Help!)
Our investment process emphasizes tax efficiency. As a result, many clients with taxable accounts may have realized capital gains in 2025 that could be modest relative to potential account growth. Of course, this level of tax efficiency may be difficult to replicate in 2026. When stocks reach levels that we consider at or above fair value we are generally incentivized to take profits. But as our company rolls out new tax services in the coming years, we will be working more closely with clients to identify opportunities for enhancing overall tax coordination as part of their broader financial planning. As we approach tax season, should you have any specific tax questions related to your investments, please do not hesitate to reach out to us.
This article is provided for informational and educational purposes only. The information contained herein is not intended and should not be construed as individualized advice or recommendation of any kind. Where specific advice is necessary individuals should contact their professional regarding their circumstances and needs. Any opinions and forward-looking statements expressed herein are subject to change without notice. The information provided herein is believed to be reliable, but we do not guarantee accuracy, timeliness, or completeness. It is provided “as is” without any express or implied warranties. There is no assurance that any investment, plan, or strategy will be successful. Investing involves risk, including the possible loss of principal. Nothing herein should be interpreted as an indication of future performance. Past performance is no indication of future results. Investment Advisory Services are offered through Mariner Independent Advisor Network (MIAN), an SEC Registered Investment Adviser. Caplan Capital and MIAN are not affiliated entities.