Welcome to 2026! The start of a new year means celebrations, resolutions, and of course, market predictions about the year to come. But as 2025 demonstrated so well, events are often unpredictable, as is the market’s reaction to those events. Below I’ve highlighted four of the major market surprises from last year that very few professionals saw coming:
- Foreign stocks strongly outperformed US stocks. Stocks around the world performed well in 2025, including US stocks. While the S&P 500 produced its third positive year of returns in a row (+17.7%), it was foreign stocks that really stole the show in 2025. Developed international markets returned 31.5% last year and emerging market stocks were even stronger (+34%). The best performing asset class among all stocks was international small cap value, up a stunning 49.4% in 2025, trouncing even the Nasdaq 100 index (+20.8%) with its heavy emphasis on technology and AI-related companies. The weaker US dollar (-9.4%) was a factor that contributed to foreign stock outperformance last year as well.
- The best performing asset in 2025 was…. silver! Although gold (+66% YTD) got most of the attention in financial media, it was actually silver that notched the highest returns (+142%) in 2025, with most of that performance coming in the final months of 2025. The strong returns were mainly driven by structural demand for solar panels, EV cars, and AI-related equipment that outstripped supply.
- The market impact from the largest increase in tariffs in a century was… unexpected. When President Trump first announced his reciprocal tariff plan in April, global stocks quickly plunged around 10-15%. Those losses were recovered within a few weeks, however, as tariff rates were adjusted and exceptions on many different imported goods were granted. Despite the fact that average US tariff rates rose from 2.6% to 14.1% by the end of the year, investors’ concerns about the impact of high tariffs on GDP and inflation were not realized. GDP growth accelerated towards the end of the year (+4.3% in 3Q25), and inflation remained steady at 2.7% year-over-year.
- The plunge in oil and gasoline prices. The final surprise from 2025 has been the significant decline in oil and gasoline prices. WTI crude oil prices peaked around $81 in mid-January, but ended the year at $58, a decline of more than 20% in 2025. By the end of the year, retail gasoline prices began to reflect lower oil prices and fell to the lowest average since the pandemic, below $3/gallon. Lower energy prices helped inflation remain in check in 2025.
As evidence-based investors, we know that markets remain as unpredictable as ever, especially in the short-term. In 2025, investors that ignored the tariff drama and maintained a disciplined plan through market volatility were rewarded with strong returns by the end of the year. Trying to outguess or time the market to take advantage of market-moving events is not likely to be a winning strategy. Instead, a long-term plan that keeps you invested through market ups and downs is a better path toward a successful investment experience.
Sources:
“The Incidence of Tariffs: Rates and Reality” (working paper) by Gita Gopinath and Brent Neiman
