Wall Street Enters the New Year With Lofty Hopes After Best Streak Since 2009

The new year kicked off much like the previous one wrapped up, with markets pushing higher, investor confidence holding firm, and few signs that the forces driving 2025’s rally have faded. The bigger question now is how long this unusually synchronized market advance can continue.

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Global equities rose in the first trading session of January, extending momentum that dominated much of last year. Optimism around artificial intelligence, cooling inflation, and accommodative central banks outweighed ongoing trade tensions, geopolitical risks, and increasingly stretched valuations. For investors, the takeaway was straightforward: embracing risk continued to deliver results.

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What set 2025 apart, though, was not just the magnitude of gains but how broadly they were shared. Stocks and bonds climbed in tandem. Credit spreads tightened once again. Commodities advanced even as inflation pressures eased.

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The rally was wide-ranging, persistent, and unusually coordinated across asset classes. By the end of the year, financial conditions had loosened to near their easiest levels of 2025, highlighting elevated valuations and a shared belief in durable growth and the transformative power of AI.

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Across global equities, fixed income, credit markets, and commodities, 2025 produced the strongest cross-asset performance since 2009 a period defined by deeply discounted valuations and aggressive policy intervention.

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That kind of alignment made diversification seem almost effortless. But it also masked a growing vulnerability: when assets designed to balance each other move in the same direction, portfolios can be more exposed than they appear. Gains pile up, but the buffer against surprises shrinks.

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“2025 has highlighted the danger of what looks like diversification but isn’t,” said Jean Boivin, global head of the BlackRock Investment Institute. “This wasn’t a year where spreading across asset classes necessarily offered meaningful protection.”

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As markets head further into 2026, the concern isn’t that last year’s rally was detached from fundamentals. Rather, it’s whether those results can realistically be repeated. Wall Street’s outlooks remain centered on familiar themes massive AI investment, resilient economic growth, and central banks with room to ease policy without reigniting inflation. Forecasts compiled by News from more than 60 firms suggest broad agreement that these pillars are still in place.

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Yet that confidence rests on markets that have already priced in a great deal of good news.

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“We don’t think the rapid valuation expansion seen in certain areas can continue at the same pace,” said Carl Kaufman, a portfolio manager at Osterweis, pointing to AI- and nuclear-related stocks. “We’re cautiously hopeful that a sharp downturn can be avoided, but we’re also concerned that returns going forward could be muted.”

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The scale of last year’s advance helps explain those worries. U.S. equities gained roughly 18%, marking a third straight year of double-digit returns, while global stocks climbed about 23%. Government bonds also posted solid gains, with global Treasuries rising close to 7% as the Federal Reserve delivered three interest-rate cuts.

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Market volatility dropped sharply, and credit markets followed suit. Measures of U.S. bond-market volatility recorded their steepest annual decline since the aftermath of the financial crisis. Investment-grade credit spreads tightened for a third consecutive year, pushing average risk premiums below 80 basis points.

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Commodities also joined the rally. An index tracking the sector advanced around 11%, driven largely by precious metals. Gold hit multiple record highs, supported by central bank purchases, easier U.S. monetary policy, and a weaker dollar.

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Inflation remains the key fault line. While price pressures moderated through much of 2025, some investors caution that shocks in energy markets or policy missteps could quickly undo that progress.

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“Our biggest risk is a resurgence of inflation,” said Mina Krishnan of Schroders. “We see a chain reaction that could bring it back, with rising energy prices as the most likely trigger.”

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The tension extends beyond financial markets. According to the Billionaires Index, the world’s 500 wealthiest individuals added a record $2.2 trillion to their combined fortunes last year, even as U.S. consumer confidence slipped for a fifth straight month in December.

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2025 also marked a revival for traditional diversification strategies. The classic 60/40 portfolio of stocks and bonds returned about 14%, while an index tracking the risk-parity quantitative strategy jumped 19% its best performance since 2020. Even so, balanced strategies have yet to attract the kind of performance-chasing inflows seen in other parts of the market.

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For now, most asset allocators remain comfortable with their positioning, arguing that economic momentum and policy support are still strong enough to offset higher valuations.

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“We’re focused on putting as much cash to work as we can in this environment,” said Josh Kutin, head of asset allocation for North America at Columbia Threadneedle Investments. “At this stage, we don’t see clear evidence that a downturn is imminent.”

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