US equity markets concluded the final trading session of 2025 on a quiet note, with major indices showing little movement as investors closed the books on a year powered by artificial intelligence optimism but shadowed by persistent inflation and valuation worries.
A Muted Finish to a Strong Year
In thin trading ahead of the New Year's Day holiday, the S&P 500 index was essentially flat during early Wednesday trade. The Dow Jones Industrial Average saw a minor dip of 47 points, or 0.1%, while the technology-heavy Nasdaq composite also showed minimal change. The subdued activity reflected the typical year-end lull, with most institutional investors having already positioned themselves for the holiday break.
Despite the quiet finale, 2025 has been a banner year for US stocks. The benchmark S&P 500 has surged by more than 17% over the course of the year. This impressive rally has been largely fuelled by widespread excitement surrounding artificial intelligence and its anticipated boost to corporate profitability. Treasury yields in the bond market experienced a slight increase.
AI Enthusiasm Meets Market Skepticism
While AI-related stocks like Nvidia and Broadcom have been the primary engines of the market's advance, the extended rally has not been without its doubters. A significant segment of the investor community remains apprehensive about whether the massive investments flowing into AI will generate enough profit and productivity improvements to justify the current, often lofty, stock valuations.
There is a growing concern that stock prices across the broader market have risen at a pace that outstrips the growth in underlying corporate earnings. This valuation gap has introduced a note of caution into the otherwise bullish sentiment.
Inflation and Fed Policy Loom Large
Adding to the market's cautious stance are ongoing fears about inflation. Although the Federal Reserve cut its benchmark interest rate three times towards the end of 2025, inflation continues to hover above the central bank's 2% target. Concerns that a potential US-led trade war could reignite price pressures further complicate the outlook.
The Fed has pointed to signs of cooling in the labour market as a rationale for its recent policy easing. Investors were awaiting fresh data on weekly jobless claims later on Wednesday for further clues on employment trends. According to the AP, minutes from the Fed's December meeting revealed divisions among policymakers, and markets are currently anticipating that the central bank will hold rates steady at its January meeting.
Sung Won Sohn, a professor of finance and economics at Loyola Marymount University, highlighted the building uncertainty. He stated that central banks must proceed carefully and that financial markets should brace for continued volatility as expectations evolve.
Commodities and Global Markets Mixed
Commodity markets exhibited sharp swings as the year drew to a close. Silver prices plunged over 8% early Wednesday, surrendering gains from a more than 10% jump a day earlier. Nonetheless, silver remains up a staggering over 140% for the year. Gold fell 1.5% but has still gained an impressive 66% in 2025.
In the energy sector, US crude oil rose 31 cents to $58.26 a barrel, while Brent crude gained 28 cents to $61.61. Despite this uptick, crude oil prices are down approximately 19% for the year, with US petrol prices nationally lower by around 6% to 7%.
Global equity markets presented a mixed picture. With markets in Germany, Japan, and South Korea closed for holidays, France's CAC 40 fell 0.5% by midday, and Britain's FTSE 100 slipped 0.2%. In Asia, Hong Kong's Hang Seng declined 0.9%, while the Shanghai Composite edged up 0.1%. Taiwan's Taiex rose 0.9%, and Australia's S&P/ASX 200 dipped marginally.
