Khan Capital | November 2025
Key Takeaways
- The S&P 500 gained 17.9% in 2025 (including dividends), its third consecutive year of double-digit returns, while gold surged 64% and international markets outperformed the US for the first time in several years.
- The year’s defining moment was the April tariff shock, which drove the S&P 500 down 15.28% from its peak before a remarkable 37%+ rally from the 8 April low.
- The AI trade survived its first major stress tests but became more discriminating, with a 60-percentage-point spread within the Magnificent Seven and just five stocks accounting for 45% of benchmark returns.
- Diversification was rewarded: international equities posted their best outperformance versus the US since 2009, gold delivered genuine hedging value, and earnings growth broadened beyond mega-cap tech.
- The bull market is intact but demands resilience: elevated valuations, policy uncertainty, and geopolitical risk mean that significant intra-year drawdowns should be expected as the price of participation in continued upside.
With one month remaining in 2025, the S&P 500 is on track for its third consecutive year of double-digit gains, up approximately 16% year-to-date. The Nasdaq Composite has advanced over 20%. The Dow Jones Industrial Average is up roughly 13%. Gold has surged more than 70%, breaking through $4,500 per ounce. And yet, these headline numbers conceal one of the most volatile and structurally significant years for global markets since the pandemic.
| Asset Class | 2025 Performance | Key Driver |
|---|---|---|
| S&P 500 | +17.9% (total return) | 39 new all-time highs; AI + broadening |
| Nasdaq Composite | +21.2% | AI capex cycle; Mag 7 leadership |
| Dow Jones | +14.9% | Value rotation; financials strength |
| International (ex-US) | +30%+ | Best outperformance vs US since 2009 |
| Gold | +64% to $4,341/oz | Central bank buying; geopolitical hedge |
| Silver | +141% to $70.60/oz | Industrial + safe haven demand |
| US Bonds | +7.3% | Best year since 2020; rate cuts |
| Bitcoin | -6.5% to $87,647 | Regulatory uncertainty; risk-off |
| US Dollar | -9.3% | Fed rate cuts; diversification flows |
The Year in Four Acts
Act I: The DeepSeek Shock (January). The year opened with a jolt that challenged the most powerful market narrative of the past two years. On 27 January, the Chinese AI firm DeepSeek released a model that appeared to match or exceed the performance of leading US models at a fraction of the cost. Nvidia suffered a 17% intraday decline, its largest ever. The broader AI trade sold off sharply. In retrospect, the DeepSeek panic proved to be a buying opportunity, but it served an important function: it reminded investors that the AI trade carries genuine competitive risk.
Act II: The Tariff Storm (February-April). The most significant market event of 2025 was the escalation of the Trump administration’s tariff regime. On 2 April, “Liberation Day,” the administration announced sweeping reciprocal tariffs, triggering the most violent equity sell-off since the pandemic. The S&P 500 fell 4.88% in a single session, wiping out over $3 trillion in market value. The VIX spiked to 60.13 on 7 April, its highest level since the COVID crash. By 8 April, the S&P 500 was down 15.28% year-to-date.
Act III: The Recovery and Rotation (April-August). On 9 April, the administration announced a 90-day pause on the most aggressive reciprocal tariffs. Markets reversed violently upward. From the 8 April low, the S&P 500 rallied approximately 25%, one of the most powerful recoveries in market history outside of the 2020 pandemic rebound. The character of the rally shifted as it progressed: the initial bounce was led by oversold tech names, but by mid-summer, the recovery broadened significantly to include industrials, financials, and value stocks.
Act IV: The Grinding Rally (September-November). The latter months were characterised by a steady grind higher. Three Fed rate cuts of 25 basis points each provided a supportive monetary backdrop. The passage of the One Big Beautiful Bill Act offered fiscal tailwinds through tax relief. Corporate earnings continued to beat expectations, with S&P 500 earnings growth tracking approximately 12% for the year.
The Three Defining Themes of 2025
Theme 1: AI survived its first real stress test. The DeepSeek shock, the tariff-driven sell-off, and persistent bubble allegations all tested the AI investment thesis. It held. Hyperscaler capital expenditure on AI infrastructure continued to accelerate, with combined spending exceeding $400 billion in 2025. But the market became more discriminating: the Magnificent Seven showed a 60-percentage-point spread from best to worst performer, and just five stocks accounted for nearly 45% of the benchmark’s returns. The AI trade is maturing from a broad-based momentum play into a stock-picker’s market.
Theme 2: Tariffs disrupted but did not derail. The April tariff shock was the most severe policy-driven market dislocation since the onset of COVID. But the subsequent pause, partial rollbacks, and bilateral negotiations demonstrated that the tariff regime, while genuinely disruptive, was more negotiable than the market’s initial panic suggested. Consumer spending remained resilient despite tariff-driven price increases, and companies adapted their supply chains more quickly than expected.
Theme 3: Diversification finally paid off. For the first time in several years, international markets outperformed US indices, tracking their strongest outperformance over the S&P 500 since 2009 according to MSCI data. European equities benefited from Germany’s fiscal stimulus, improving governance in Japanese equities attracted record foreign capital, and gold’s 70%+ surge provided genuine hedging benefit. The dollar weakened 9.3% as the Fed cut rates while other central banks held or tightened.
What Worked and What Didn’t
Winners: AI infrastructure (data storage, semiconductors, cloud providers), gold and precious metals, US financials (benefiting from deregulation expectations and steeper yield curves), international equities (particularly Europe and Japan), and defence stocks (driven by geopolitical conflict and rising NATO budgets).
Losers: Consumer discretionary (tariff-driven cost pressures, weakening sentiment), ad-tech and digital advertising (AI disruption concerns), real estate (the only S&P 500 sector in negative territory), and highly leveraged companies exposed to the higher-for-longer rate environment.
The Lessons of 2025
Volatility is the price of admission, not a reason for exit. Investors who sold during the April tariff panic locked in losses that were recovered within weeks. The 37%+ rally from the April low rewarded those who maintained positions through the worst of the storm.
Concentration risk is a double-edged sword. The Magnificent Seven now represent approximately one-third of the S&P 500’s market capitalisation. The 60-percentage-point spread within the group demonstrates that treating them as a monolithic allocation is increasingly dangerous.
Policy risk requires a policy framework. The tariff regime, the Fed’s rate path, the passage of the tax bill, and the geopolitical escalation with Iran all had material market impacts. Investors who incorporated policy analysis into their investment process were better positioned to navigate the year’s most significant dislocations.
Diversification’s value is measured in cycles, not quarters. After years of US mega-cap dominance that made diversification feel like a performance drag, 2025 demonstrated that the value of geographic, asset class, and style diversification manifests precisely during the periods of stress when it is most needed.
Looking Ahead to 2026
The bull market’s third year has been its most eventful. The foundation for 2026 includes: elevated but not unsupported valuations, broadening earnings growth, a fractured central bank policy landscape, an AI capex cycle that is accelerating rather than decelerating, and a geopolitical environment that ranges from uncertain (tariffs, US-China) to actively dangerous (Iran, Ukraine). The investors best positioned for 2026 will be those who have absorbed the central lesson of 2025: the bull market is real, but it demands resilience, diversification, and the willingness to remain invested through the moments of maximum discomfort.
Sources: Apella Wealth (2025 Year in Review), IndexBox / Bloomberg (2025 Market Recap), FinancialContent (S&P 500 2025 Performance), Quraishi Law & Wealth (2025 Year in Review)
Related Reading
For our detailed coverage of the key events of 2025, see DeepSeek Shock, Liberation Day Tariffs, and The Great Diversification.
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