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TD Wealth Market Insights: 2025 Recap

Source: Morningstar, TD Wealth Chief Investment Office. Indices used include the Bloomberg US Treasury TR Index, Bloomberg US Aggregate Bond TR Index, Bloomberg US Corp Bond TR Index, Bloomberg US Treasury US TIPS TR Index, Bloomberg Municipal TR Index, Bloomberg US MBS Float Adjusted TR, S&P 500 TR Index, Russell 1000 Growth TR Index, Russell 1000 Value TR Index, Russell 2000 TR Index, MSCI EAFE NR Index, and the MSCI EM NR Index. All performance is in U.S. dollars. Past performance is not indicative of future results. The indices are a tool to compare the performance of one or more indices. The volatility and performance of the indices may be greater than or less than the volatility and performance of actual investments. Indices reflect the reinvestment of dividends and income. Indices do not have fees, expenses or taxes, which would lower performance. Indices are unmanaged and not available for direct investment.

Market Brief Commentary – 2025 Recap

  • 1

    Power Surge: U.S. equities continued to build on gains in the fourth quarter with the S&P 500 Index capping the year with a total return of over 17%, powered by technology and AI investment. International equities also moved sharply higher benefiting from dollar weakness in 2025. Bonds advanced over both the three- and twelve-month period led by high yield and mortgage-backed securities.

  • 2

    Taking it Easy: The Federal Reserve cut rates for the third consecutive time in December bringing the target range down to 3.50-3.75%. This follows an extended pause earlier in the year and brings the policy rate lower by a total of 75bps in 2025, as the health of the labor market remains in the balance. We currently expect the Fed to lower the funds rate to 3.25% in 2026, which should provide some relief to consumers and households.

  • 3

    All that Glitters: Commodities largely finished 2025 in positive territory, supported by robust global demand. Precious metals were the standout for performance, with gold and silver prices rising sharply over the year. Looking ahead to 2026, we expect volatility, but also opportunity, as infrastructure buildouts and AI-driven reindustrialization continue to fuel demand for metals and energy.

  • 4

    Tailwinds and Time Horizons: Global growth stood up to trade turmoil better than many feared in 2025. Heading into the new year, we expect the US economy to benefit from the tailwinds of fiscal stimulus from the One Big Beautiful Bill, regulatory reform and the AI data center power boom. While valuations may be extended in certain areas of the market, we continue to believe the objectives of long-term investors will be well served by remaining invested and diversified.

 TD Wealth Asset Allocation Views – December 2025

  • Equity – Modest Overweight

    • Global equity markets have had a strong year due to positive earnings trends and AI investments, which resulted in valuations expanding.
    • While there could be volatility around AI and economic expectations, we remain overweight equities as earnings growth, as well as increasingly pro-business government policies, create a supportive backdrop for the markets.

  • Fixed Income – Modest Underweight

    • While market-based inflation expectations remain anchored, the Federal Reserve will continue to emphasize developments in the labor market.
    • As there is room for further rate cuts over the next 12 to 18 months, bonds have the potential to generate capital gains, in addition to providing income.

  • Cash & Equivalents - Neutral

    • Cash rates are expected to ease as short-term rates fall, but declines should be gradual.

TD Economics Key Financial Forecasts

Q1 2025

Q2 2025

Q3 2025

Q4 2025

Q1F 2026

Q2F 2026

Q3F 2026

Q4F 2026

Fed Funds Target Rate

4.50

4.50

4.25

3.75

3.75

3.50

3.25

3.25

2-yr Govt. Bond Yield

3.89

3.72

3.60

3.47

3.50

3.35

3.35

3.35

10-yr Govt. Bond Yield

4.23

4.24

4.16

4.17

4.05

4.00

4.00

4.00

30-yr Govt. Bond Yield

4.59

4.78

4.73

4.84

4.60

4.50

4.50

4.50

Forecast by TD Economics as of December 2025; all forecasts are end-of period. Source: FactSet, Federal Reserve Board, TD Economics.

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