Profit Taking at Year-End
Key Takeaways
- Equity market retreated during the last week as sellers took profits.
- Overseas stock markets lead in 2025, boosted by decline in value of dollar.
- Bond returns in 2026 prospectively limited to income earned not price change.
Stock market trading volumes were reported as the lowest of the year due to investors taking time off during the holiday, but upon returning investors have taken profits selling down the market this week by -0.5%. The S&P 500’s year-to-date (YTD) return was 18.7% after a week of profit-taking that cut into the pre-holiday 19.3% gain. This YTD return has outpaced the annualized 14.7% return of the last five years as equity markets have shown to be resilient in the face of several sector specific crises. After starting the year with three months of declining stock prices that reached a low point in April, down -15.0%, markets once again rebounded this time up 39.7% from that low.
Overseas markets were the “real story” in 2025, with developed international markets gaining 0.2% this week and 32.5% YTD. Approximately half of this year’s return came from currency appreciation against the U.S. dollar, which saw its sharpest annual decline in nearly a decade. Our current outlook remains positive on this sector as we head into 2026 as valuations remain attractive.
Bond owners also got a boost in value this week moving up 0.2%, adding to the 7.4% YTD advance for the broad bond market index. During 2025 about 44% or 3.2% of bond returns came from price changes, the result of lower interest rates and spread compression. Our outlook for 2026 anticipates a higher reliance on a repeat of the 4.2% income return component reported in 2025, as range bound interest rates limit yield curve movement and tight credit spreads suggest limited potential for further price changes. As 2026 begins a 10-year “A” rated corporate bond earns just 0.74% above Treasury notes about half the maximum spread reported last April and is within striking distance of a 20-year low. Strategists predict little change for the level of bond market yields for next year as they predict inflation to remain at current levels and a slowing of real economic growth of around 2.0%.
Last week U.S. weekly jobless claims fell by 16,000 to a seasonally adjusted 199,000. This figure, while one of the lowest of the year, was significantly influenced by ongoing volatility in government data reporting as seasonal adjustments cut 26,612 from the actual figures. Gathering of data was also complicated by a shortened holiday week that included two new federal holidays on December 24 and December 26.
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Sources: BTC Capital Management, FactSet Research Systems Inc., London Stock Exchange Group Plc, FTSE Russell, U.S. Bureau of Labor Statistics, U.S. Census Bureau. U.S. Bureau of Economic Analysis.
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