2025 Q4 Investing Insights

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Hello, this is Bill Woodruff. Welcome to this Quarter's Investing Insights, reviewing the data and outcomes through December 31st, 2025. As always, my goal is to provide an evidence-based perspective free from speculation and centered on fundamentals to support sound enduring investment decisions. Before we begin, a quick word for compliance purposes, what I'm sharing here reflects my views and is intended for informational purposes.

These views are subject to change and involve risks and uncertainties, some of which are significant scope and entirely outside of our control. There's no guarantee these views will prove accurate and actual outcomes may differ materially. Past performance does not predict future results, and nothing in this presentation should be considered personalized investment advice.

We'll start with a review of the year's results across major asset classes. The S&P 500 returned nearly 18% for 2025 while non-US equities regained 33%. Within US large caps, the net results for both [00:01:00] growth and value were comparable. Despite the outsized focus on large growth in AI related companies throughout the year, value stocks delivered returns that were in line with their growth counterparts.

This year, the magnificent seven, apple, Amazon, alphabet, meta, Microsoft, Nvidia, and Tesla continued to account for a large share of the s and p five hundred's overall return. Within this group, results varied significantly. Companies like Nvidia and Meta outperformed while others, such as Tesla experienced weaker periods, earnings growth was similarly uneven.

The key takeaway is that even with the most prominent segment of the market, outcomes can diverge meaningfully from one company to the next. This highlights the level of concentration in index results and the variability that can exist beneath headline performance. In 2025, capital expenditures by major ai, [00:02:00] hyperscalers, alphabet, Amazon Meta, Microsoft, and Oracle reached record levels.

Investments in infrastructure continues to rise, which is visible in both companies', financials and overall sector composition. At the same time, valuations for these companies remain elevated, reflecting a high degree of optimism about future growth. Extent to which this investment will translate into future business results, and how much of that is already anticipated in current prices remains uncertain.

Valuation dispersion across the s and p 500 remains historically wide, with the gap between the highest and lowest price to earnings ratios exceeding long-term averages, and the median PE also elevated. Combined with high levels of index concentration in a handful of highly valued stocks, these conditions reinforce that diversification remains at least as important as ever, [00:03:00] if not even more important.

Assessing the AI cycle involves substantial uncertainty, important variables, such as the pace of technological advancement, utility, lifespan of new hardware, return on invested capital. Policy changes are difficult to forecast. Given current valuation levels. A measured evidence-based approach is warranted.

Falling interest rates led to a strong year for high quality fixed income with the Barclays aggregate and five-year treasuries producing a total return of over 7%. At year end. The nominal 10-year treasury yield stood just above 4% with real yields around 1.5%. From an intermediate to long-term perspective, these levels are reasonably healthy by historical standards indicating that investors are being compensated for taking interest rate risk, especially compared to the low [00:04:00] and even negative real yields seen in recent years.

In summary 2025 saw strong results across equity markets with notable performance from both US and non-US stocks, and ongoing attention on a handful of large technology companies, valuation dispersion and index concentration to remain elevated, reinforcing the importance of diversification and valuation discipline principles that have stood the test of time across varying market environments.

WealthFactor. We remain committed to a disciplined evidence-based approach, focusing on controllable factors, keeping costs low, and helping clients stay aligned with their long-term plan. If you'd like to discuss any of these observations further, or review how they relate to your own portfolio, please feel free to reach out.