The fourth quarter of 2025 unfolded amid an unusually noisy backdrop, highlighted by the longest federal government shutdown in history, lasting from October 1st through November 12th. The shutdown disrupted key areas of the U.S. economy, ranging from air travel to delays in the collection and publication of inflation data used by the Federal Reserve. Despite these challenges and uncertainties, the government eventually reopened, and financial markets looked through the political dysfunction. Equity markets continued to move higher, suggesting investors remained focused on secular trends and the prospect of easing monetary policy rather than political headlines or softening economic data.

Monetary policy remained a key tailwind for markets during the quarter, even as macroeconomic signals were mixed. The Federal Reserve cut interest rates twice in Q4, as fears of reaccelerating inflation eased and concerns around the labor market grew. The unemployment rate continued to trend higher, reaching 4.6% by quarter's end, while the status of inflation was foggy due to the lack of government data. Only one Consumer Price Index (CPI) report was released during the quarter, and while it indicated slowing inflation, the dataset was incomplete because of the shutdown, leaving the future path of inflation unclear.

In the stock market, sentiment shifted for companies investing in artificial intelligence. In Q3, we highlighted Oracle’s high-profile deal with OpenAI and expressed some skepticism around the economics of the arrangement. That skepticism proved valid, as Oracle shares declined roughly 40% in Q4, erasing more than the entire gain generated following the initial announcement. Similar drawdowns extended to other AI-linked companies, including CoreWeave, a maker of infrastructure to support the use of AI. Investors grew increasingly wary of revenue structures perceived as circular or dependent on aggressive capital spending rather than consumer demand, instead favoring companies with proven revenue growth driven by new customers.

JFG Outlook

As investment continues to come in, competition in artificial intelligence is likely to remain intense for the foreseeable future. While aspects of today’s environment resemble the early-2000s fiber-optic buildout, especially with service providers paying for one another in a circular pattern, today’s AI leaders generally have strong businesses with higher profit margins. Innovation continues to challenge the status quo, exemplified by Google’s recent Gemini release, which surpassed OpenAI’s ChatGPT and used in-house semiconductor technology instead of Nvidia’s chips. At the same time, investors are shifting toward a “show me” mindset, demanding sustainable profitability and revenue growth potential. This change is best reflected in sharp declines from certain AI stocks such as CoreWeave (-50% in Q4) and Oracle (-40%). ⁽¹⁾

From an asset allocation perspective, bonds remain an important part of the portfolio construction.At the start of 2025, we believed bonds remained attractive given elevated treasury yields. For the year, the Vanguard Money Market Fund returned 4.2%, while the Bloomberg Aggregate Bond Index gained a notably higher 7.2%. ⁽¹⁾ This performance gap served as a reminder that once interest rates begin to fall, bonds quickly regain their appeal relative to money markets and short-term CDs. While interest rates are now lower than at the start of the year, bonds continue to offer meaningful diversification benefits. This was evident during the spring’s tariff-driven market volatility and could again prove valuable if economic growth slows further.

Periods like these often reward discipline and diversification. Even during the dot-com bust, certain segments of the market, such as small-cap value stocks and high-quality bonds, generated positive returns and provided relative protection as technology stocks declined sharply. As valuations in select growth areas remain elevated, selectively taking chips off the table may be warranted, as demonstrated by the record cash pile Warren Buffett is holding at Berkshire Hathaway. Doing so can help rebalance portfolios, manage risk, and ensure investors are well-positioned for the next opportunity as market leadership continues to evolve.

Thank you for your continued trust in Juno Financial Group.

Sources

1. FactSet