Quarterly investment review

By Strategic Advisers, LLC

Market Landscape

Global Markets End 2025 on a High Note: Stocks and Bonds Rally Amid AI Enthusiasm, Policy Shifts, and Falling Interest Rates.

October 2025: The U.S. Federal Reserve (the Fed) introduced a second consecutive interest rate cut to help keep the economy steady as job growth slowed.

November 2025: After weeks of uncertainty, the longest U.S. federal government shutdown finally came to an end.

December 2025: December brought one more interest rate cut, the third for the year, as the Fed balanced jobs and inflation.

The Big Picture

Global financial markets continued to deliver solid gains in both the fourth quarter and across 2025. U.S. stock returns were mixed in the final months as investors weighed slowing job growth and persistent inflation against elevated valuations for some artificial intelligence (AI) companies. Earlier in the year, investor sentiment felt the strain caused by shifting tariff policies and concerns over the impact of a new tax bill signed in July. However, resilient economic growth, rising corporate earnings, and optimism around AI ultimately powered strong full year returns for U.S. stocks.¹

International stocks also finished higher for the quarter and year, benefiting from favorable starting valuations and overcoming tariff-related challenges.²

The bond market delivered strong gains for both the quarter and the year.³ These positive returns were supported by attractive yields as well as declines in both short- and intermediate-term interest rates. After pausing its campaign in January 2025, the Fed restarted its rate-cutting program in October and again in December. Bond returns rose as investors anticipated, and then reacted to, the Fed’s rate cuts in the fourth quarter. However, following its December meeting, the Fed signaled it might keep rates on hold for a while. That shift pushed market expectations for additional cuts further into 2026, and bond returns dipped slightly in December as a result.

Looking ahead:

Analysts broadly expect economic and corporate earnings growth to continue into 2026. These types of conditions have historically supported stocks and other risk assets⁴ like corporate bonds. The recently passed tax bill could further boost consumer activity through measures such as higher standard deductions and lower tax brackets. Additionally, an increased state and local tax (SALT) deduction cap for certain taxpayers and a deduction on certain qualified tip income could further support American consumers. However, uncertainty remains as inflation may stay somewhat elevated. Higher inflation could have negative consequences for consumer confidence and spending, which are both major drivers of overall U.S. economic health.

In general, the market currently anticipates two more Fed interest rate reductions in 2026. This forecast is based on expectations for weakening employment trends and near-term inflation. However, these cuts may not come until mid-year or even later.

DID YOU KNOW?

Inflows into U.S. stocks hit a record $308B in 2025. Beating the last peak in 2021 by 14%.⁵

Positioning Landscape: Total Return Investment Approach

We have adjusted holdings to help manage risk and potentially mitigate the impact of inflation.

U.S. Stocks:

We have increased exposure to U.S. stocks as companies posted strong earnings results in 2025 and their earnings outlooks improved for 2026.
We favored value stocks and small- to mid-sized companies. These are areas of the market with lower valuations (i.e. inexpensive) that may help manage potential volatility in more expensive parts of the market.
We have maintained less exposure to very large companies due to high valuations.
Our focus has remained on core, research-driven managers that follow a disciplined process based on fundamental analysis of individual companies.
We have some exposure to real estate stocks, including data centers and cell phone towers. Additionally, we believe this real estate exposure could potentially benefit from further U.S. economic growth.

International Stocks:

International developed markets face positive earnings and economic outlooks. As a result, we increased exposure to international developed markets while decreasing exposure to emerging markets.
We have remained focused on managers who invest in quality companies.^6a
Like U.S. stocks, we have less exposure to very large companies due to high valuations.

Bonds:

Future earnings and economic growth could potentially support U.S. stock market growth. As a result, we decreased exposure to investment-grade bonds in favor of U.S. stocks.
We maintained duration, and its corresponding interest rate sensitivity, to be in line with the benchmark^7a. This means that as interest rates rise or fall, we believe that the strategy’s bond exposure is likely to react similarly to the benchmark.
When compared with the strategy’s benchmark allocations, we have preferred mortgage-backed securities (MBS) over U.S. Treasuries and corporate bonds. MBS have had a more favorable economic outlook than Treasuries and more attractive valuations than corporate bonds.
We have maintained exposures to Treasury Inflation-Protected Securities (TIPS) and commodity investments to help guard against potential inflationary pressures.
We have also kept an allocation to high-yield corporate bonds to provide additional income, with the view that default risk has remained reasonably low.

Other:

Finally, we have exposure to alternative investments with low correlation to traditional asset classes (i.e. stocks and investment-grade bonds). These investments have the potential to provide stability during periods of stock and/or bond market volatility.

The following investment types discussed here are for general informational purposes. All asset class categories referenced may not be represented within your specific strategy.

Asset Classes – A Closer Look

Both stocks and bonds posted strong returns for the quarter and the year.

U.S. Stocks⁶ +2.4% QTR and +17.1% YR

Markets close out 2025 strong: Tech dominates, value stocks rebound, and commodities soar.

For a third consecutive year, 2025 saw U.S. stocks posted returns well above historical averages. For context, U.S. stocks have returned 17.1%, 23.9%, and 26.1% for 2025, 2024, and 2023 respectively. Meanwhile, the historical annual average return for U.S. stocks is 12.7%.⁷ This positive performance trend has been driven by ongoing higher-than-expected corporate earnings. Additionally, enthusiasm for companies viewed as AI beneficiaries led to outperformance in the communication services and information technology sectors for the year.⁸

Value stocks outperformed growth stocks in the fourth quarter, reversing the year-to-date trend.⁹ Growth stocks still led for the full year, driven by strong performance in the communication services and information technology sectors. However, their edge narrowed late in the year, as value stocks benefited from a move away from over-extended technology valuations toward companies with solid fundamentals and attractive pricing. Dividend-paying stocks also benefited from this shift, as they typically fall within the “value” segment of the market.

Sector performance was mixed in the fourth quarter, though all sectors posted gains for the year.¹⁰ Health care led the quarter as investors moved toward defensive areas of the stock market, drawn by stable earnings and renewed interest after earlier underperformance. Real estate was the weakest performer, pressured by high interest rates and tighter financing conditions. Additionally, a shift toward growth sectors like technology dampened demand for real estate stocks. For the full year, communication services and information technology led, returning 31.9% and 23.0%, respectively. These sectors were fueled by strong earnings and enthusiasm around AI innovation. Real estate and consumer staples remained the laggards for the year.

Large company stocks outperformed their generally less technology-oriented small and mid-size counterparts for the quarter and year.¹¹ This outperformance was powered by strong corporate earnings, optimism around AI innovation, and support from Fed interest rate cuts.

Commodity stocks posted solid gains for both the quarter and the year.¹² Precious metals led commodity stock performance, reaching record highs with an annual return of 80.2%, outperforming U.S. stocks by a wide margin.¹³ This rally was supported by rising prices in gold and other precious metals with significant industrial uses, such as silver and platinum.

International Stocks¹⁴ +5.1% QTR and +32.6% YR

Despite geopolitical challenges, international markets delivered impressive returns.

International stocks delivered strong gains in 2025 despite significant challenges including tariffs, geopolitical tensions, and regional conflicts.¹⁵ Positive corporate earnings and attractive valuations compared to U.S. markets helped drive strong outperformance versus U.S. stocks.

International developed market stocks delivered positive returns over the quarter and year and beat their U.S. counterparts over both periods.¹⁶ Europe was the top performing region for year, returning 36.3%.¹⁷ Plans for increased government spending supported European stocks in 2025, most notably within the banking, construction, and defense industries.¹⁸ Japan also had positive returns for the quarter and the year, supported by corporate governance reforms and rising AI-related investments.¹⁹

Emerging markets lagged international developed markets in the fourth quarter.²⁰ However, they finished ahead of international developed markets for the full year. China returned 31.4%, posted its best annual results since 2017, fueled by tech stocks tied to AI and government measures to improve corporate efficiency.²¹ Brazil and Mexico also stood out, attracting foreign investment thanks to low valuations, anticipated interest rate cuts, and improved fiscal outlooks.²²

Bonds²³ +1.1% QTR and +7.3% YR

Healthy yields and Fed interest rate cut supported a strong quarter for the bond market.

The broad investment-grade bond market experienced meaningful gains for the quarter and the year. 2025 was a year of elevated volatility, but one in which the bond market posted gains in all four quarters. Positive bond market performance was supported by high yields at the start of the quarter. Additionally, declining short and intermediate-term interest rates boosted bond prices. For the full year, bonds rose 7.3%, their best annual result since 2020.

All investment-grade sectors, including Treasury, corporate, and mortgage-backed bonds, posted positive returns for the quarter and the year.²⁴ For the quarter, U.S. Treasuries outperformed investment-grade corporate bonds, which were constrained by historically tight credit spreads.²⁵ However, for the full year, corporate bonds returned 7.8%, comfortably beating the 6.4% gain from Treasuries. Credit sensitive parts of the bond market that have tended to benefit from higher yields delivered solid returns for the quarter and the year. That included areas like agency mortgage backed securities (MBS), commercial MBS, and asset backed securities (ABS). For example, MBS returned 1.7% and 8.6% for the quarter and year, respectively. During the quarter, short-term bond yields fell while long-term yields rose, causing the yield curve to steepen. These movements were caused by Fed interest rate cuts as well as heavy issuance of long-term Treasuries to fund U.S. government spending. As a result, limited-duration and intermediate bonds had the strongest returns during the quarter within the taxable investment-grade bond space.²⁶

High-yield corporate bonds outpaced their investment-grade counterparts, returning 1.3% and 8.5% for the quarter and the year respectively.²⁷ Stronger-than-expected earnings kept default risks low, helping high-yield bonds deliver impressive returns.

Meanwhile, after a shaky start to the year, municipal bonds rallied in the second half of 2025 and ended the year with a resilient fourth quarter. Specifically, municipal bonds gained 1.6% for the quarter, helping them offset a volatile first half of 2025 and lifting their full-year return to 4.3%.²⁸ Municipal bonds experienced positive returns as the budget bill signed in early July left their tax-exempt standing unchanged. The passage of this bill allayed investor concerns that had created uncertainty and driven outflows from the municipal bond market during the first half of 2025. Meanwhile, interest rates declined, and investor demand ticked higher. Furthermore, issuer fundamentals²⁹ for municipal bonds remained healthy, supported by stable tax receipts. Showing a reversal from their taxable peers, limited-duration and intermediate municipal bonds lagged their longer-term counterparts for the quarter.³⁰ As the year ended, yields on municipal bonds remained relatively high, offering tax-equivalent yields that compared favorably with U.S. Treasuries and corporate bonds.

Returns for Treasury inflation-protected securities (TIPS) were positive for both the quarter and the year.³¹ However, they remained mostly flat for the quarter as inflation expectations remained relatively stable.

For Additional Information, please view our Quarterly Market Perspective (opens in new tab or window)

The foregoing commentary was prepared by Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company. (opens in new tab or window)

The foregoing commentary was prepared by Strategic Advisers LLC, a registered investment adviser and a Fidelity Investments company.

¹Dow Jones U.S. Total Stock Market Index, as of 12/31/2025.

²MSCI All Country World ex US Index (Net MA Tax), as of 12/31/2025.

³ Bloomberg U.S. Aggregate Bond Index, as of 12/31/2025.

⁴ Risk assets are investments that tend to have significant price volatility, such as stocks, commodities, high-yield bonds, real estate, and currencies.

⁵ Reuters, Retail investors to have more sway over Wall Street after record year, 12/23/2025.

^6a Quality companies tend to have more stable earnings and lower levels of debt than the broader market.

^7a Bloomberg U.S. Aggregate Bond Index.

⁶ Dow Jones U.S. Total Stock Market Index, as of 12/31/2025.

⁷ Dow Jones U.S. Total Stock Market Index, calendar-year returns 1970-2025.

⁸ Based on a GICS sector breakdown of the Dow Jones U.S. Total Stock Market Index, as of 12/31/2025.

⁹ Russell 1000 Value Index and Russell 1000 Growth Index, respectively, as of 12/31/2025.

¹⁰ Based on a GICS sector breakdown of the Dow Jones U.S. Total Stock Market Index, as of 12/31/2025.

¹¹ Russell 1000 Index and Russell 2500 Index, respectively, as of 12/31/2025.

¹² Bloomberg Commodity Index, as of 12/31/2025.

¹³ Bloomberg Precious Metals Index, as of 12/31/2025.

¹⁴ MSCI All Country World ex US Index (Net MA Tax), as of 12/31/2025.

¹⁵ MSCI All Country World ex US Index (Net MA Tax), as of 12/31/2025.

¹⁶ MSCI EAFE Index (Net MA Tax) and Dow Jones U.S. Total Stock Market Index, respectively, as of 12/31/2025.

¹⁷ Based on a regional breakdown of the MSCI EAFE Index, as of 12/31/2025.

¹⁸ Based on a GICS industry breakdown of the MSCI Europe Index, as of 12/31/2025.

¹⁹ Based on a regional breakdown of the MSCI EAFE Index, as of 12/31/2025.

²⁰ MSCI Emerging Markets Index (Net MA Tax) and MSCI EAFE Index (Net MA Tax), respectively, as of 12/31/2025.

²¹ MSCI China Index, as of 12/31/2025.

²² Based on a country breakdown of the MSCI Emerging Markets Index (Net MA Tax), as of 12/31/2025.

²³ Bloomberg U.S. Aggregate Bond Index, as of 12/31/2025.

²⁴ Based on a sector breakdown of the Bloomberg U.S. Aggregate Bond Index, as of 12/31/2025.

²⁵ Corporate bond spread, also known as credit spread, is the difference in yield between a corporate bond and a government bond with the same maturity. Credit spreads tend to widen when investors grow more concerned about debt defaults and shrink when investors feel confident that defaults are less of a concern. When credit spreads are low or “tight” compared to historical averages, it implies that they are “rich” or “expensive.” In the context of corporate bonds, when investors anticipate a widening (or increase) of spreads, they generally move away from corporate bonds to avoid potential losses due to rising corporate bond yields. On the other hand, when there is an anticipated tightening of spreads, investors generally move to corporate bonds to potentially gain from any potential appreciation due to declining corporate bond yields.

²⁶ Bloomberg U.S. 1-5 Year Credit/Government Bond Blend Index and Bloomberg U.S. Intermediate Aggregate Bond Index, as of 12/31/2025. Limited-duration bonds are those with an average range of approximately two to three and a half years. Intermediate bonds are those with an average duration range of approximately three and half to seven years. Duration is a measure of a security’s price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security’s interest payments in addition to the amount of time until the security reaches maturity and also considers certain maturity-shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration can generally be expected to be more sensitive to interest rate changes than a fund with a shorter average duration.

²⁷ ICE BofA US High Yield Constrained Index and Bloomberg U.S. Aggregate Bond Index, as of 12/31/2025.

²⁸ Bloomberg Municipal Bond Index, as of 12/31/2025.

²⁹ Fundamentals are information that contributes to the financial or economic well-being of an investment and its subsequent financial valuation.

³⁰ Based on a maturity breakdown of the Bloomberg Municipal Bond Index, as of 12/31/2025.

³¹ Bloomberg US Treasury Inflation-Protected Securities (TIPS) Index, as of 12/31/2025.

Keep in mind that investing involves risk. The value of your investment will fluctuate over time, and you may gain or lose money.

Past performance is no guarantee of future results.

Diversification and asset allocation do not ensure a profit or guarantee against loss.

Unless otherwise noted, this commentary does not necessarily represent the views of Fidelity Investments. This commentary is for informational purposes only and is not intended to constitute a current or past recommendation, investment advice of any kind, or a solicitation of an offer to buy or sell any securities or investment services. The information and opinions presented are current only as of the date of writing without regard to the date on which you may access this information. All opinions and estimates are subject to change at any time without notice.

Data is unaudited. Information may not be representative of current or future holdings.

Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. Foreign investments involve greater risks than U.S. investments, including political and economic risks and the risk of currency fluctuations, all of which may be magnified in emerging markets.

Investments in smaller companies may involve greater risk than those in larger, more well-known companies.

In general, the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk, liquidity risk, call risk, and credit and default risks for both issuers and counterparties. Any fixed income security sold or redeemed prior to maturity may be subject to loss. High yield/non-investment grade bonds involve greater price volatility and risk of default than investment grade bonds.

The municipal market can be affected by adverse tax, legislative or political changes and the financial condition of the issuers of municipal funds. Although municipal funds seek to provide interest dividends exempt from federal income taxes and some of these funds may seek to generate income that is also exempt from the federal alternative minimum tax, outcomes cannot be guaranteed, and the funds may generate some income subject to these taxes. Income from these funds is usually subject to state and local income taxes. Generally, municipal securities are not appropriate for tax-advantaged accounts such as IRAs and 401(k)s.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P.

Index information:

Please note that indexes are unmanaged, and performance of the indexes includes reinvestment of dividends and interest income, unless otherwise noted. Indexes are not illustrative of any particular investment, and it is not possible to invest directly in an index. Securities indexes are not subject to fees and expenses typically associated with managed accounts or investment funds.

Dow Jones US Total Stock Market Index is a float-adjusted market capitalization–weighted index of all equity securities of US headquartered companies with readily available price data.

MSCI ACWI (All Country World Index) ex USA Index (Net MA Tax) is a market capitalization-weighted index designed to measure investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

The Bloomberg US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The index includes Treasuries, government-related and corporate securities, mortgage-back securities (agency fixed-rate passthroughs), asset-backed securities and collateralized mortgage-backed securities (agency and non-agency).

Russell 1000 Value: Russell 1000 Value Index is a market capitalization-weighted index designed to measure the performance of the large-cap value segment of the U.S. equity market. It includes those Russell 1000 Index companies with lower price-to-book ratios and lower expected growth rates.

Russell 1000 Growth: Russell 1000 Growth Index is a market capitalization-weighted index designed to measure the performance of the large-cap growth segment of the U.S. equity market. It includes those Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth rates.

Russell 1000 Index is a market capitalization–weighted index designed to measure the performance of the large-cap segment of the US equity market.

Russell 2500 Index is a market capitalization–weighted index designed to measure the performance of the small to mid-cap segment of the US equity market. It includes approximately 2,500 of the smallest securities in the Russell 3000 Index.

Bloomberg Commodity Index Total Return measures the performance of the commodities market. It consists of exchange-traded futures contracts on physical commodities that are weighted to account for the economic significance and market liquidity of each commodity.

Bloomberg Precious Metals Index - The index measures the performance of two future contracts on precious metals: gold and silver. It is a multiplecommodity sub-index consisting of the contracts included in the Dow Jones-UBS Commodity Index related to precious metals.

MSCI EAFE Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

MSCI Europe Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors of the developed markets in Europe. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts (NR).

The MSCI China Index captures large and mid cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs). The index covers about 85% of this China equity universe. Currently, the index includes Large Cap A and Mid Cap A shares represented at 20% of their free float adjusted market capitalization.

Bloomberg US 1-5 Year Government/Credit Bond Index is a market value-weighted index of fixed-rate investment-grade debt securities with maturities from one to five years from the US Treasury, US Government-Related, and US Corporate indices.

Bloomberg US Intermediate Government/Credit Bond Index is a market value-weighted index of investment-grade fixed-rate debt securities with maturities from one up to (but not including) ten years from the US Treasury, US Government-Related, and US Corporate Indices.

ICE BofA US High Yield Constrained Index is a modified market capitalization–weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The ICE BofA US High Yield Index but caps issuer exposure at 2%.

Bloomberg Municipal Bond Index is a market value–weighted index of investment–grade municipal bonds with maturities of one year or more.

The Bloomberg U.S. TIPS Index is an unmanaged index designed to represent securities that protect against adverse inflation and provide a minimum level of real return. To be included in this index, bonds must have cash flows linked to an inflation index, be sovereign issues denominated in U.S. currency, and have more than one year to maturity, and, as a portion of the index, total a minimum amount outstanding of 100 million U.S. dollars.

Fidelity does not provide legal or tax advice. The information herein is general in nature and should not be considered legal or tax advice. Consult an attorney or tax professional regarding your specific situation.

Clients are responsible for all tax liabilities arising from transactions in their accounts, for the adequacy and accuracy of any positions taken on tax returns, for the actual filing of tax returns, and for the remittance of tax payments to taxing authorities.

Fidelity® Wealth Services provides non-discretionary financial planning and discretionary investment management through one or more Personalized Portfolios accounts for a fee. Advisory services offered by Strategic Advisers LLC (Strategic Advisers), a registered investment adviser. Brokerage services provided by Fidelity Brokerage Services LLC (FBS), and custodial and related services provided by National Financial Services LLC (NFS), each a member NYSE and SIPC. Strategic Advisers, FBS, and NFS are Fidelity Investments companies.

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Fourth Quarter 2025 Review