Indiana Trust Wealth Management
Investment Advisory Services
by Clayton T. Bill, CFA
Vice President, Director of Investment Advisory Services

  • The U.S. equity market, represented by the S&P 500 index, slipped 0.6% for the week.
  • 2025 is shaping up to be a good year in global stock markets. While forecasting is very difficult, some of the drivers for rising markets in 2025 are expected to continue next year.

With only a few weeks left in 2025, it is shaping up to be a strong year across global stock markets. The US market’s 16% year-to-date return (at the time of writing) is well above its long-term average annual return.

Foreign stock markets have been stronger than the US, helped by expectations for an infrastructure and defense build-out in Europe as well as a weaker dollar. The MSCI Europe index is up 31% this year. Emerging markets have been buoyed by China’s market, rising by over 30% as well.

Some factors driving markets in 2025 are expected to continue in 2026. Operating profit margins for S&P 500 companies reached 13.6% in the 3rd quarter, an all-time high watermark for the index, and analysts expect margins to increase next year.

There have been many questions about the massive capital spending on AI. Is it causing a bubble in the real economy, in markets, or in both? Will investors shift their tone towards “show me results” for all that spending, pivoting from the “take my money” vibe that has ruled the day?

Recent events with the hyperscaler name Oracle could be an early indication of such a sentiment shift. Oracle is spending 75% of its revenue on capital expenditures, financing much of it with debt. Its management team announced on its earnings call this week that spending figure is set to rise. The stock market is not reacting well to this updated guidance. Since Oracle’s share price peaked in September, it has retreated by over 40%.  

Then again, Oracle’s stock is still up 14% for the year, and its share price retreat hasn’t had much impact on broader market returns. It is still early innings for the AI story. It is not evident who the winners from all the capital spending will be, and expectations for AI spending in 2026 are still rising. The combined capital expenditure forecast for 2026 for the big five hyperscalers stands at over $500 billion. This would be constructive for corporate profits.


Source: Bespoke Investment Group, December 11, 2025

Along with the massive sums of planned capital investment, there may be a few macroeconomic tailwinds for corporate profits next year. Although the jobs market is rather squishy, there are a few early signs that it is troughing and beginning to firm up.

Also, the Federal Reserve cut its target interest rate this week by 0.25%. Although the chairman of the Fed, Jerome Powell, hardly committed to deeper rate cuts next year in his comments this week, that dynamic may change. Mr. Powell is set to be replaced as chairman in 2026. Lower interest rates than the market currently expects next year would be a pleasant surprise.

The federal budget deficit is always a hotly debated political topic. The deficit is large and shows little sign of coming down in a meaningful way. This is usually portrayed negatively in the financial press and by politicians on both sides of the aisle. However, as a matter of national accounting, the federal budget deficit is a source of corporate profits, all else equal.

Over short investment timeframes, such as one year, it is better to view future returns as having the potential for a wide range of outcomes. Across 100 years of market history, the average positive year in the stock market has been 21%, while the average down year has been -13%. It is rare to earn an “average return” of between 8% and 10% in the US stock market in a given year. Interestingly, calendar year returns in that range have only occurred four times since 1950.

Over long investment timeframes, however, the range of outcomes narrows.

Editor’s note: our weekly note will be on hiatus until January. Indiana Trust wishes all our clients, partners in the communities we serve, and professional colleagues a safe and merry holiday season!

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IMPORTANT DISCLOSURES: All info contained herein is solely for general informational purposes. It does not take into account all the circumstances of each investor and is not to be construed as legal, accounting, investment, or other professional advice. The author(s) and publisher, accordingly, assume no liability whatsoever in connection with the use of this material or action taken in reliance thereon. All reasonable efforts have been made to ensure this material is correct at the time of publication.  Copyright Indiana Trust Wealth Management 2025.