Welcome to 2026! The year we have just closed offered one of those rare combinations: solid economic growth, easing inflation, and strong market returns, all while headlines screamed uncertainty at every turn. This underscored that progress rarely arrives in a straight line. Read on for a review that takes you through what moved markets and the economy in 2025, which dynamics we expect to carry forward, and where we see both opportunity and caution as the year unfolds.
U.S. stocks finished 2025 with broad double-digit gains, marking a third consecutive bullish year for large-cap equities. Performance remained highly concentrated, with technology and AI-linked names driving the Nasdaq 100 to another year of outperformance and helping push the major indices to or near record highs.
Overall:
Stock prices rose primarily because companies earned more money — not just because investors were willing to pay higher premiums — with mega-tech and financial companies leading the way. However, performance varied widely across sectors, making selectivity important. Notably, international equities also advanced strongly, with the MSCI All Country World ex-USA index gaining 32.39% for the year.
The Federal Reserve's three quarter-point rate cuts marked a meaningful shift in 2025 — from “higher for longer” to a more gradual easing cycle. Treasury yields drifted lower throughout the year, with the benchmark 10-year rate spending most of its time between 4% and 5% before settling near the low 4% range by December. For bond investors, this translated into welcome relief: high-quality fixed income delivered positive total returns after a bruising stretch when rising rates hammered principal values.
With high-quality fixed income rates still hovering under 5%, we continue to see double-digit yields in our callable yield note strategy and 9%+ in private credit strategies. Paragon added a new structure to our note strategy in 2025, introducing catapult notes to our portfolios. Catapult notes are a hybrid between the income and growth strategies that can generate long-term capital gains vs ordinary income (contact your wealth manager for more details to see if this strategy fits your portfolio goals).
We have also added new tax-advantaged strategies that may help clients better manage the tax implications of capital gains generated from traditional investments, the sale of a business, real estate, etc. Without getting into greater detail, the takeaway is that Paragon continues to search for new strategies to help our clients meet their financial goals and to overcome issues that might be present in their financial plan.
Housing told a more complicated story. Mortgage rates did fall — the average 30-year fixed rate dropped from 6.91% to 6.15% over the course of the year — but that hardly triggered a surge in activity. Home prices actually climbed about $7,400, or 1.7%, to a new median high, proving that elevated rates do not necessarily make homes cheaper; they just freeze the market.
Housing affordability remains a stubborn challenge. For households considering a move or downsizing, careful timing and creative financing strategies may help as rates inch lower but stay well above pre-pandemic levels.
Policy turbulence was the year's persistent background noise. The combination of higher tariffs and accelerating technology adoption effectively reshaped parts of the U.S. economy, channeling capital toward AI, automation, and domestic manufacturing while squeezing trade-exposed industries and some consumer-facing businesses.
Geopolitically, 2025 did not deliver just one dramatic crisis. Instead, it gave us a steady simmer of tensions. Ongoing conflicts, supply chain vulnerabilities, and emerging debates around cyber threats and AI governance all contributed to elevated risk premiums throughout the year.
The year 2025 delivered a mixed but steady economic picture.
On inflation, we saw real progress.
Markets had to digest more than economics.
Growth at Paragon
2025 saw tremendous growth for Paragon both in our assets under management and with new additions to our team. We welcomed three new associates throughout the year in our Kansas City office. Dusan Drazic joined our operations team, Brady Hogan joined our financial planning team, and Daniel Green joined our wealth management team. You can find their bio’s on our website at www.paragoncap.com/our-team.
For long-term investors, last year demonstrated that markets can move forward even when headlines feel uncertain. Despite political turbulence and a cooling labor market, positive earnings growth and moderating inflation provided the foundation for another year of gains.
Looking into 2026, we see reasons for both optimism and vigilance. Continuing tariff issues, persistent deficit spending, continuing geopolitical tensions and the maturing AI investment cycle all suggest this is a time for discipline rather than exuberance. We continue our recommendation that our structured note strategy is appropriate for both growth and income investors due to the downside protection built into the notes and increased income potential in the callable yield notes.
As always, we welcome your questions, thoughts, or interest in reviewing your portfolio together. Our goal is to help you navigate whatever the markets bring with clarity and confidence.
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