Market Performance & Trends

Stock investors enjoyed another year of market outperformance in 2025. The S&P 500 has now achieved three years in a row of double-digit gains. Since the S&P 500 index was established in 1928, there are six instances of three straight years of double-digit gains in the S&P 500. Interestingly, three of those six periods have occurred since 2012. The longest such streak is five years in a row from 1995 to 1999. In addition to the outperformance of U.S. stocks, international stocks led the way in 2025. International stock investors have endured underperformance, as compared to the S&P 500, in seven of the past ten years. This portion of the stock market continues to be undervalued, even after the outperformance of 2025. One more trend to mention was the outperformance of the value stocks, as compared to growth stocks, in the 4th quarter. In only two of the past ten years (2016 and 2022), value stocks outperformed growth stocks. In the fourth quarter, value stocks outperformed growth stocks (3.5% vs. 1.2%).

Economic Landscape

The Federal Reserve cut the Federal Funds Rate at the last three meetings of 2025. The Federal Funds rate is currently in the range of 3.50% to 3.75%. Year end projections from the last Federal Reserve meeting in 2025 indicate one rate reduction is expected in 2026. Even with the reduction in the Federal Funds rate in the 4th quarter, longer term U.S. Treasury yields slightly increased, steepening the yield curve from shorter maturities to longer maturities. The 43-day shutdown of the federal government in October and November severely decreased the amount of available economic data in the 4th quarter. However, estimates indicate strong GDP data in the 4th quarter, a falling unemployment rate and stabilizing jobs numbers. All of these data points should allow the Federal Reserve to be cautious with future moves in the federal funds rate. One leftover issue from 2025 to be dealt with in 2026 is the U.S. Supreme Court’s review of the tariffs instituted at different points in 2025. To date, the Court has not issued an opinion on the legality of the tariff policy as currently constructed. Either way, the inflationary impact of this policy has been muted, as inflation data has not been as inflated as was once anticipated.

Investment Committee Update

The Investment Committee instituted no changes to current investment allocations or investment portfolios in the 4th quarter. Within TTC portfolios, allocation to the international stocks, added to portfolio returns.

Investment Outlook

As mentioned earlier, the international stock markets currently offer valuations, which are still attractive, even with the outperformance in this space in 2025. In addition, with recent underperformance of the value names within the stock market, these investments offer opportunities as well. As mentioned earlier, with the double digit returns for the S&P 500 the last three years, we would be remiss to not mention the current valuation of the U.S. stock market as it compares to historical levels. The cyclically adjusted price-to-earnings (CAPE) ratio of 39.4 in December indicates the most expensive stock market valuation since October 2000. This ratio has only been this expensive 3% of the time in its 68-year history. While it is understood, the market as a whole is labeled as overvalued, we believe there are areas which still hold value. Namely, international investments, value stocks and small cap stock investments. Our portfolios have had excess exposure to these areas of the stock market and will continue to pursue investments in these spaces.

By: John Terrill, Senior Vice President, Trust Officer, and Wealth Advisor & Investment Committee Chair

By: Toby Marks, Senior Vice President, Chief Investment Officer & Portfolio Manager