8 lessons for investors from 2025 📜
Plus a charted review of the macro crosscurrents 🔀
📆TKer will be off Dec. 28 and Jan. 4. The free weekly newsletter will return on Sunday, Jan. 11. Happy Holidays!
📈The stock market ticked higher last week, with the S&P 500 climbing 0.1% to end at 6,834.50. The index is now down 1% from its Dec. 11 closing high of 6,901.00 and up 16.2% year-to-date. For market insights, check out the Stock Market tab at TKer. »
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A lot happened in 2025.
While it may be difficult to list every major event of the year, hopefully we’ll at least be able to remember the lessons learned from them. Specifically, the investing lessons applicable to the future as we try to make sense of the market’s moves and the news driving them.
Here are some of the lessons TKer learned (or relearned) this year.
1. You can be a terrible market timer and do just fine 🤦🏻♂️
When I met with my accountant in February, I learned I had some room to lower my taxable income. One action I took was contributing more to my self-employed 401(k) plan. Wasting no time, I transferred some cash to that account, and on Feb. 18, I added to my S&P 500 index fund position.
The very next day, the stock market topped and proceeded to fall 20% before bottoming on April 8.
It’s okay. Things appear to be working out. The S&P is up 10% since that purchase. It’s a reminder that the market favors those who can put in the time.
2. Stocks are spending less time in the S&P 500 🔀
There’s a lot of turnover in the S&P 500. The index regularly drops companies and replaces them with up-and-comers.
But the pace of this turnover has been picking up.
From BofA: “The growing impact of disruptive companies can have downstream effects on incumbent companies. Roughly a third of the S&P 500 has been replaced since 2015. In 1958, the average seven-year rolling lifespan of a company on the S&P 500 was 61 years. By the 1980s, it had dropped to 30 years, by 2016 it was 24 years, and by 2021 it was 16 years. If we continue on this road, by 2027, companies could last just 12 years as they become increasingly disrupted.”
3. Just because it seems like a market signal, doesn’t mean it is one 🐞
Whether it’s strategists’ bullishness, market concentration, the strength of the dollar, rate cuts, price-earnings (P/E) ratios, or the past year’s price performance, there seems to be no single indicator that offers a consistent signal for what the market will return in the near term. Read more here. »
That’s why in their research, analysts often employ the most important Latin phrase in investing: Ceteris paribus. Read more here. »
4. Identifying winning stocks is hard. Holding winning stocks is a nightmare. 🫠
We’ve discussed exhaustively how difficult it is to pick stocks that outperform the market. But let’s assume you were able to identify these winning stocks. Is it smooth sailing from there as you smoke the competition? No. Far from it.
Morgan Stanley’s Michael Mauboussin and Dan Callahan studied the price behavior of 6,500 stocks, including the 20 stocks with the best total shareholder returns over the 40-year period from 1985 to 2024. Even those best stocks were wildly volatile for their investors.
“The median maximum drawdown was 72% for the best group, and the median maximum drawdown duration, the time from peak to trough, was 2.9 years,” they found. “The median time to return to the prior peak was 4.3 years. The median annualized abnormal returns following the bottom was 8% for the next 5 years and 12% for the next 10 years. This is based on the unrealistic assumption the stock was purchased at the low.”
5. High valuations can be followed by years of strong returns 🤷🏻♂️
Valuations are currently hovering near five-year highs. This is notable because, historically, a stock market trading at above-average valuations tends to generate weak returns in the years to follow.
But not always.
Ten years ago, the cyclically adjusted price-earnings ratios predicted we’d get low single-digit returns. Instead, we saw double-digit returns. Read more here. »
Five years ago, the next 12-month forward P/E ratio was historically high at 23.6x. The S&P 500 has nearly doubled since then. Read more here. »
Even sophisticated Wall Street research operations have been getting this wrong. Read more here. »
6. The stock market can rally even when the economy is cooling 🎭
The economy continued its years-long trend of slowing in 2025. Meanwhile, the stock market has rallied, and it currently trades near record highs. Read more here. »
Perhaps the stock market is anticipating a brighter future than what the economy may be signaling about the present. Read more here. »
It all speaks to TKer Stock Market Truth No. 10: The stock market is and isn’t the economy.
The economy may not be working for everyone right now, but it’s at least working for stock market investors. Keep this in mind as you read potential news stories in 2026 about the financial pain that some people may be going through. Read more here. »
7. Earnings drive stock prices 🤝
As I often say, earnings and expectations for earnings are the most important long-term drivers of stock prices.
In fact, this view was linked to in The New York Times’ feature, “14 Charts That Explain 2025.”
This is the simplest explanation for why the stock market has roared higher this year. Read more here. »
8. Good years in the stock market tend to be great years 🚀
The average annual return in the S&P 500 is about 10%. I don’t know what kind of year 2026 will be, but don’t expect it to be perfectly average, which is actually a rare occurrence.
Importantly, in positive years, the market returns about 20%. From this perspective, the impressive returns in 2023, 2024, and 2025 aren’t all that extraordinary. Read more here. »
So as we go into the new year, we should manage our expectations. Because history suggests it’s unlikely to be average. Read more here. »
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More from TKer:
KKR sets 2026 target 🔭
On Thursday, KKR strategists introduced their 2026 S&P 500 year-end price target of 7,600 on $303 EPS.
“From a valuation perspective, our 2026-27 outlook assumes equity multiples remain in a 22-23x forward earnings range, broadly in-line with current levels near 22.5x,” they wrote. “We are not underwriting further multiple expansion. However, we believe valuations can largely hold steady, supported by easing tariff concerns (barring Supreme Court outcomes), accommodative financial conditions, further (albeit fewer) Fed rate cuts, and ongoing tailwinds from prior global monetary easing.“
KKR’s target is in the middle of what top firms are predicting, with the range stretching from 7,100 to 8,100.
For more, read: Wall Street’s 2026 outlook for stocks 🔭
Review of the macro crosscurrents 🔀
There were several notable data points and macroeconomic developments since our last review:
🚨Despite the government reopening after a lengthy shutdown, economic data from federal agencies continues to be delayed. Until that data is released on its normal, timely schedule, we’ll be leaning more on private sources of data.
📈 Job creation was positive in November and negative in October as unemployment rose. According to the BLS’s Employment Situation report released Tuesday, U.S. employers added just 64,000 jobs in November, but shed 105,000 jobs in October. The trend remains weak — a reminder that we’re at an economic tipping point.
Government job losses largely explain October’s negative print.
The New York Times’ Ben Casselman explains: “Employment in the federal government plunged by 162,000 in October. That was mostly the result of the deferred resignation program offered in the early days of DOGE. Federal employment is down by more than 250,000 since the end of last year.“
Total payroll employment was at 159.6 million jobs in November, down slightly from the September peak.
The unemployment rate — that is, the number of workers who identify as unemployed as a percentage of the civilian labor force — rose to 4.6% in November, the highest reading since October 2021.
The labor market clearly isn’t as hot as it used to be.
For more on the labor market, read: We’re at an economic tipping point ⚖️ and 9 once-hot economic charts that cooled 📉
💸 Wage growth cools. Average hourly earnings rose by 0.14% month-over-month in November, down from the 0.44% pace in October. On a year-over-year basis, November’s wages were up 3.5%.
For more on why policymakers are watching wage growth, read: Revisiting the key chart to watch amid the Fed’s war on inflation 📈
💼 New unemployment insurance claims tick lower, but total ongoing claims rise. Initial claims for unemployment benefits declined to 224,000 during the week ending Dec. 6, down from 237,000 the week prior. This metric remains at levels historically associated with economic growth.
Insured unemployment, which captures those who continue to claim unemployment benefits, rose to 1.897 million during the week ending Dec. 6.
Low initial claims confirm that layoff activity remains low. The uptick in continued claims suggests that laid-off workers are having difficulty finding new jobs.
For more context, read: The hiring situation 🧩 and The labor market is cooling 💼
🛍️ Retail sales are holding up. According to the Chicago Fed’s Advance Retail Trade Summary, sales climbed 0.3% in November.
Adjusted for inflation, sales were unchanged from the prior period.
💳 Card spending data is holding up. From JPMorgan: “As of 12 Dec 2025, our Chase Consumer Card spending data (unadjusted) was 0.7% above the same day last year. Based on the Chase Consumer Card data through 12 Dec 2025, our estimate of the US Census November control measure of retail sales m/m is 0.39%.“
For more on economic activity, read: 9 once-hot economic charts that cooled 📉 and We’re at an economic tipping point ⚖️
👎 Consumer vibes remain poor, but improve marginally. From the University of Michigan’s October Surveys of Consumers: “While lower-income consumers posted gains, sentiment for higher-income consumers was little changed. Buying conditions for durable goods fell for the fifth straight month, whereas expectations for personal finances and business conditions rose in December. Labor market expectations lifted a bit this month, though a solid majority of 63% of consumers still expects unemployment to continue rising during the next year. Despite some signs of improvement to close out the year, sentiment remains nearly 30% below December 2024, as pocketbook issues continue to dominate consumer views of the economy.”
Consumer sentiment readings have lagged resilient consumer spending data. For more on this contradiction, read: What consumers do > what consumers say 🙊 and We’re taking that vacation whether we like it or not 🛫
🎈Consumer price inflation appears to cool. The Consumer Price Index (CPI) in November was up 2.7% from a year ago, the lowest level since July. Adjusted for food and energy prices, core CPI was up 2.6%, flat from the prior month’s rate.
Due to the government shutdown, there was no CPI data for October.
⛽️ Gas prices dip further below $3. From AAA: “This holiday season is delivering cheaper gas prices as travelers hit the road in record numbers. The national average dropped more than 4 cents since last week to $2.89. This is the cheapest December at the pump since the end of 2020. Crude oil prices remain low, and despite an increase in gasoline demand over the holidays, supply is strong. Overall, 2025 has been a stable year for the national average with few fluctuations and no sharp spikes.”
For more on energy prices, read: Higher oil prices meant something different in the past 🛢️
🏘️ Home sales tick higher. Sales of previously owned homes increased by 0.5% in November to an annualized rate of 4.13 million units. From NAR chief economist Lawrence Yun: “Existing-home sales increased for the third straight month due to lower mortgage rates this autumn. However, inventory growth is beginning to stall. With distressed property sales at historic lows and housing wealth at an all-time high, homeowners are in no rush to list their properties during the winter months.”
November’s prices for previously owned homes declined month over month but were up year over year. From the NAR: “The median existing-home sales price for all housing types in November was $409,200, up 1.2% from one year ago ($404,400) – the 29th consecutive month of year-over-year price increases.”
🏠 Mortgage rates tick lower. According to Freddie Mac, the average 30-year fixed-rate mortgage declined to 6.21%, down from 6.22% last week: “The average 30-year fixed-rate mortgage has remained within a narrow 10-basis point range over the last two months. With rates down half a percent over last year, purchase applications are 10% above the same time one year ago.”
As of Q3, there were 148.3 million housing units in the U.S., of which 86.9 million were owner-occupied and about 39% were mortgage-free. Of those carrying mortgage debt, almost all have fixed-rate mortgages, and most of those mortgages have rates that were locked in before rates surged from 2021 lows. All of this is to say: Most homeowners are not particularly sensitive to the small weekly movements in home prices or mortgage rates.
For more on mortgages and home prices, read: Why home prices and rents are creating all sorts of confusion about inflation 😖
🏠 Homebuilder sentiment improves from low levels. From the NAHB: “Market conditions remain challenging with two-thirds of builders reporting they are offering incentives to move buyers off the fence. Meanwhile, builders are contending with rising material and labor prices, as tariffs are having serious repercussions on construction costs.”
😬 This is the stuff pros are worried about. From BofA’s December Global Fund Manager Survey: “December saw FMS investor concerns around an ‘AI bubble’ retreat slightly (from 45% to 38%), though it remained the #1 biggest ‘tail risk’. Note the addition of “private credit” this month, which 14% of FMS investors say is the biggest ‘tail risk’ over the coming year.”
Here’s how the biggest “tail risk” has evolved over the years.
For more on risks, read: Three observations about uncertainty in the markets 😟 and Two times when uncertainty seemed low and confidence was high 🌈
👎 Activity survey signal cooling growth. From S&P Global’s December U.S. PMI report: “Although the survey data point to annualized GDP expansion of about 2.5% over the fourth quarter, growth has now slowed for two months. With new sales growth waning especially sharply in the lead-up to the holiday season, economic activity may soften further as we head into 2026. The signs of weakness are also broad-based, with a near-stalling of inflows of work into the vast services economy, accompanied by the first fall in factory orders for a year. While manufacturers continue to report higher output, lower sales point to unsustainable production levels, which will need to be lowered unless demand revives in the new year. Service providers reported one of the slowest months for sales growth since 2023. Firms have also lost some confidence in the outlook and have restricted their hiring in December in accordance with the more challenging business environment. A key concern is rising costs, with inflation jumping sharply to its highest since November 2022, which fed through to one of the steepest increases in selling charges for the past three years. Higher prices are again being widely blamed on tariffs, with an initial impact on manufacturing now increasingly spilling over to services to broaden the affordability problem.“
Keep in mind that during times of perceived stress, soft survey data tends to be more exaggerated than actual hard data.
For more on this, read: What businesses do > what businesses say 🙊
Below are data that were released by Federal agencies last week. Due to the effects of the government shutdown, the numbers are a bit stale but worth seeing.
🛍️ Retail shopping growth stalled. Retail sales ticked up to a record $732.6 billion in October, marginally higher than the $732.4 billion level in September.
Core retail sales — which excludes automobiles, gasoline, building materials, and food services — climbed by 0.8%.
🇺🇸 Most U.S. states are still growing. From the Philly Fed’s September State Coincident Indexes report: “Over the past three months, the indexes increased in 41 states, decreased in eight states, and remained stable in one, for a three-month diffusion index of 66. Additionally, in the past month, the indexes increased in 31 states, decreased in 12 states, and remained stable in seven, for a one-month diffusion index of 38.”
📈 Near-term GDP growth estimates are tracking positively. The Atlanta Fed’s GDPNow model sees real GDP growth rising at a 3.5% rate in Q3.
For more on GDP and the economy, read: 9 once-hot economic charts that cooled 📉 and We’re at an economic tipping point ⚖️
Putting it all together 📋
🚨 The Trump administration’s pursuit of tariffs is disrupting global trade, with significant implications for the U.S. economy, corporate earnings, and the stock market. Furthermore, the delay of economic data from federal agencies due to the government shutdown has made it more challenging to read the economy. Until we get more clarity, here’s where things stand:
Earnings look bullish: The long-term outlook for the stock market remains favorable, bolstered by expectations for years of earnings growth. And earnings are the most important driver of stock prices.
Demand is positive: Demand for goods and services remains positive, supported by healthy consumer and business balance sheets. Job creation, although cooling, appears to be modestly positive, and the Federal Reserve — having resolved the inflation crisis — shifted its focus toward supporting the labor market.
But growth is cooling: While the economy remains healthy, growth has normalized from much hotter levels earlier in the cycle. The economy is less “coiled” these days as major tailwinds like excess job openings and core capex orders have faded. It has become harder to argue that growth is destiny.
Actions speak louder than words: We are in an odd period, given that the hard economic data decoupled from the soft sentiment-oriented data. Consumer and business sentiment has been relatively poor, even as tangible consumer and business activity continues to grow and trend at record levels. From an investor’s perspective, what matters is that the hard economic data continues to hold up.
Stocks are not the economy: There’s a case to be made that the U.S. stock market could outperform the U.S. economy in the near term, thanks largely to positive operating leverage. Since the pandemic, companies have aggressively adjusted their cost structures. This came with strategic layoffs and investment in new equipment, including hardware powered by AI. These moves are resulting in positive operating leverage, which means a modest amount of sales growth — in the cooling economy — is translating to robust earnings growth.
Mind the ever-present risks: Of course, we should not get complacent. There will always be risks to worry about, such as U.S. political uncertainty, geopolitical turmoil, energy price volatility, and cyber attacks. There are also the dreaded unknowns. Any of these risks can flare up and spark short-term volatility in the markets.
Investing is never a smooth ride: There’s also the harsh reality that economic recessions and bear markets are developments that all long-term investors should expect as they build wealth in the markets. Always keep your stock market seat belts fastened.
Think long-term: For now, there’s no reason to believe there’ll be a challenge that the economy and the markets won’t be able to overcome over time. The long game remains undefeated, and it’s a streak that long-term investors can expect to continue.
For more on how the macro story is evolving, check out the previous review of the macro crosscurrents. »
Key insights about the stock market 📈
Here’s a roundup of some of TKer’s most talked-about paid and free newsletters about the stock market. All of the headlines are hyperlinked to the archived pieces.
10 truths about the stock market 📈
The stock market can be an intimidating place: It’s real money on the line, there’s an overwhelming amount of information, and people have lost fortunes in it very quickly. But it’s also a place where thoughtful investors have long accumulated a lot of wealth. The primary difference between those two outlooks is related to misconceptions about the stock market that can lead people to make poor investment decisions.
The makeup of the S&P 500 is constantly changing 🔀
Passive investing is a concept usually associated with buying and holding a fund that tracks an index. And no passive investment strategy has attracted as much attention as buying an S&P 500 index fund. However, the S&P 500 — an index of 500 of the largest U.S. companies — is anything but a static set of 500 stocks.
The key driver of stock prices: Earnings💰
For investors, anything you can ever learn about a company matters only if it also tells you something about earnings. That’s because long-term moves in a stock can ultimately be explained by the underlying company’s earnings, expectations for earnings, and uncertainty about those expectations for earnings. Over time, the relationship between stock prices and earnings has a very tight statistical relationship.
Stomach-churning stock market sell-offs are normal🎢
Investors should always be mentally prepared for some big sell-offs in the stock market. It’s part of the deal when you invest in an asset class that is sensitive to the constant flow of good and bad news. Since 1950, the S&P 500 has seen an average annual max drawdown (i.e., the biggest intra-year sell-off) of 14%.
How the stock market performed around recessions 📉📈
Every recession in history was different. And the range of stock performance around them varied greatly. There are two things worth noting. First, recessions have always been accompanied by a significant drawdown in stock prices. Second, the stock market bottomed and inflected upward long before recessions ended.
In the stock market, time pays ⏳
Since 1928, the S&P 500 has generated a positive total return more than 89% of the time over all five-year periods. Those are pretty good odds. When you extend the timeframe to 20 years, you’ll see that there’s never been a period where the S&P 500 didn’t generate a positive return.
What a strong dollar means for stocks 👑
While a strong dollar may be great news for Americans vacationing abroad and U.S. businesses importing goods from overseas, it’s a headwind for multinational U.S.-based corporations doing business in non-U.S. markets.
Stanley Druckenmiller's No. 1 piece of advice for novice investors 🧐
…you don't want to buy them when earnings are great, because what are they doing when their earnings are great? They go out and expand capacity. Three or four years later, there's overcapacity and they're losing money. What about when they're losing money? Well, then they’ve stopped building capacity. So three or four years later, capacity will have shrunk and their profit margins will be way up. So, you always have to sort of imagine the world the way it's going to be in 18 to 24 months as opposed to now. If you buy it now, you're buying into every single fad every single moment. Whereas if you envision the future, you're trying to imagine how that might be reflected differently in security prices.
Peter Lynch made a remarkably prescient market observation in 1994 🎯
Some event will come out of left field, and the market will go down, or the market will go up. Volatility will occur. Markets will continue to have these ups and downs. … Basic corporate profits have grown about 8% a year historically. So, corporate profits double about every nine years. The stock market ought to double about every nine years… The next 500 points, the next 600 points — I don’t know which way they’ll go… They’ll double again in eight or nine years after that. Because profits go up 8% a year, and stocks will follow. That's all there is to it.
Warren Buffett's 'fourth law of motion' 📉
Long ago, Sir Isaac Newton gave us three laws of motion, which were the work of genius. But Sir Isaac’s talents didn’t extend to investing: He lost a bundle in the South Sea Bubble, explaining later, “I can calculate the movement of the stars, but not the madness of men.” If he had not been traumatized by this loss, Sir Isaac might well have gone on to discover the Fourth Law of Motion: For investors as a whole, returns decrease as motion increases.
Most pros can’t beat the market 🥊
According to S&P Dow Jones Indices (SPDJI), 65% of U.S. large-cap equity fund managers underperformed the S&P 500 in 2024. As you stretch the time horizon, the numbers get even more dismal. Over a three-year period, 85% underperformed. Over a 10-year period, 90% underperformed. And over a 20-year period, 92% underperformed. This 2023 performance follows 14 consecutive years in which the majority of fund managers in this category have lagged the index.
Proof that 'past performance is no guarantee of future results' 📊
Even if you are a fund manager who generated industry-leading returns in one year, history says it’s an almost insurmountable task to stay on top consistently in subsequent years. According to S&P Dow Jones Indices, just 4.21% of all U.S. equity funds in the top half of performance during the first year were able to remain in the top during the four subsequent years. Only 2.42% of U.S. large-cap funds remained in the top half
SPDJI’s report also considered fund performance relative to their benchmarks over the past three years. Of 738 U.S. large-cap equity funds tracked by SPDJI, 50.68% beat the S&P 500 in 2022. Just 5.08% beat the S&P in the two years ending 2023. And only 2.14% of the funds beat the index over the three years ending in 2024.
The odds are stacked against stock pickers 🎲
Picking stocks in an attempt to beat market averages is an incredibly challenging and sometimes money-losing effort. Most professional stock pickers aren’t able to do this consistently. One of the reasons for this is that most stocks don’t deliver above-average returns. According to S&P Dow Jones Indices, only 19% of the stocks in the S&P 500 outperformed the average stock’s return from 2001 to 2025. Over this period, the average return on an S&P 500 stock was 452%, while the median stock rose by just 59%.
