2025 Year in Review
Doug Nolan
With 2026 raging, let’s get a “year in review” wrapped up and quickly move on.
It was a year for the history books, and I will not attempt a comprehensive review of developments.
At the end of a historic super cycle, it’s either Bubble bursts or Bubble excess that goes to even crazier extremes.
Crazier extremes owned 2025 – at home and abroad.
The aged global government finance Bubble reached a new pinnacle.
It was a year of “resilience.”
After a negative (0.6%) Q1 print, GDP growth had surged to 4.3% by Q3 – with the Atlanta Fed GDPNow forecast currently registering a blistering 5.3% for Q4.
Labor markets were similarly resilient.
After beginning the year at 217,000, weekly initial unemployment claims hit 250,000 during June and spiked to 264,000 in September.
But claims were back down to a historically low 200,000 by the end of the year.
The unemployment rate increased a modest three-tenths in 2025 to 4.4%.
This compares to a 5.7% average over the period 1990 through 2025.
A Credit system anchored by a $1.8 TN federal deficit and unprecedented speculative leverage can work wonders.
Inflation was persistent.
Year-over-year CPI ended 2024 at 2.9%.
It was at 3.0% this past September, before ending the year at 2.7%.
At 60.4 in January, the ISM Services Prices component was up to 70 in October, before concluding 2025 at a still elevated 64.3.
Financial markets were resilient.
The S&P500 returned 17.86%.
The Semiconductor Index returned 43.46%, with the Nasdaq100 returning 21.02%.
The Nasdaq Biotech Index returned 33.44%, the Nasdaq Computer Index 29.17%, and the small cap Russell 2000 12.79%.
It was a phenomenal year for financial stocks.
The KBW Bank Index returned 32.57%, with the Broker/Dealers returning 29.21%.
The NYSE Financial Index returned 22.7%.
Spectacular 2025 returns include Citigroup (65.78%), Goldman Sachs (53.5%), Bank of New York Mellon (51.10%), Morgan Stanley (41.21%), Capital One (35.91%), JPMorgan (34.42%) and Wells Fargo (32.69%).
Quite a year for parts of “fin tech.”
Robinhood returned 203.54%, Dave Inc. 154.73%, Lemonade 94.06%, Sofi Technologies 70.00%, Shopify 68.59%, and Interactive Brokers 45.60%.
Combined Assets of JPMorgan, Bank of America, Citigroup, and Goldman Sachs expanded $1.009 TN (9%) during 2025 to $12.302 TN.
January 15 – Bloomberg (Silla Brush):
“BlackRock Inc. pulled in $342 billion of total client cash in the fourth quarter, pushing the firm to a record $14 trillion of assets…
Investors added $268 billion on a net basis to its long-term investment funds, including $181 billion to its exchange-traded fund business that now has $5.5 trillion overall…
The tally in the last three months of the year pushed the total annual haul, including money-market and cash-management funds, to $698 billion, setting a new record.”
January 15 – Wall Street Journal (Spencer Jakab):
“It’s the circle of life, but for your money. Exchange-traded funds, which have existed for just 35 years, are booming…
More than 1,000 ETFs launched in the U.S. last year with the industry’s assets reaching $13.5 trillion…
December saw record inflows and launches.
Their invention was like dropping a new apex predator into the investment habitat—an unfair fight.
A cumulative $3 trillion flowed out of traditional mutual funds between 2015 and 2024 with a similar sum moving to ETFs, according to the Investment Company Institute.”
There’s no mystery surrounding economic and market resilience.
Financial conditions entered 2025 exceptionally loose and concluded the year looser.
After slashing rates 100 bps in 2024, the Fed was back with 25 bps cuts in September, October, and December.
Importantly, the Fed loosened monetary policy despite liquidity overabundance, unprecedented leveraged speculation, and blow-off financial excess, including a historic AI mania/arms race.
Late-cycle Bubble Dynamics create enormous challenges for managing monetary policy.
For one, there’s a fine line between deleveraging/bursting Bubbles and ongoing parabolic growth in speculative excess – a fine line between a problematic tightening of conditions and further loosening, only exacerbating destabilizing speculation and high-risk lending.
Moreover, the greater the intensity of late-cycle Bubble excess and the more acute systemic fragilities; the clearer the policymaker focus on sustaining the boom.
The Fed’s overarching responsibility to safeguard financial stability demanded laser focus on loose conditions and destabilizing speculative excess.
With the President breathing down their necks, Fed officials failed to hold the line.
They, for another fateful year, accommodated historic Bubble excess.
I’ll assume the Fed harbored market accident fears.
With the institution under attack and its independence in jeopardy, there was understandable trepidation that market problems would be blamed on the Fed’s misguided “restrictive” rate policy.
Markets were at the cusp of an accident during the April “liberation day” panic.
In particular, the AI/Credit nexus was under significant stress.
Private credit was at the cusp.
Leveraged loan prices were under intense pressure, as high-risk lending markets seized up.
Not coincidently, AI and technology stocks were in free fall. The MAG7 Index was clobbered 12% in just two sessions.
From the April 2nd close to April 7th intraday lows, NVIDIA collapsed almost 19%, and the Semiconductor Index sank 17%.
As goes loose conditions, so goes the AI arms race.
But it wasn’t just vulnerable AI and private Credit Bubbles that had the Fed and global central bank community on edge in April.
In an extraordinary development, Treasury yields spiked 50 bps during the week of April 11th.
Global markets were hit with intense instability, yet the standard safe haven demand for Treasuries and the dollar failed to materialize.
Market talk was of hedge fund “basis trade” unwinds, along with fears of China Treasury liquidations.
The big unwind was unfolding.
President Trump staged a hasty retreat.
Placing his tariff regime on “pause,” “TACO” entered common parlance.
What then unfolded is for the history books: a powerful short squeeze and unwind of hedges triggered a disorderly upside reversal across global risk markets.
Short squeezes are themselves liquidity generators.
But this squeeze combined with a major upsurge in leveraged speculation globally - highly levered hedge fund Treasury “basis trades,” “carry trades” throughout international bond markets, and myriad levered strategies in equities, crypto (including “basis trades”), derivatives and elsewhere.
In late-cycle speculative Bubble fashion, “buy the dip” and FOMO were locked and loaded.
With the “Trump put” confirmed, ebullient markets concluded that the administration and Fed had coalesced into the most powerful backstop to have ever buoyed financial markets.
Leveraged speculation and resulting liquidity overabundance went to precarious excess.
More specifically, with Scott Bessent (and the administration) fixated on Treasuries - and the Fed always obsessed with Treasury and repo market liquidity – risk embracing hedge funds were more than comfortable piling on highly levered “basis trades.”
January 13 – Bloomberg (Alexandra Harris):
“The basis trade has swelled to roughly $1.5 trillion, underscoring the need to closely monitor its size to avoid a repeat of the market eruption seen in 2020, according to Morgan Stanley strategists.
The bank estimates the size of the strategy — employed by hedge funds to take advantage of small price gaps between Treasury cash markets and futures — has grown 75% since its 2019 peak.
The size of the notional trade has outpaced the growth in Treasury bond issuance in recent years…
The trade contributed to volatility in the markets in 2020 when cash bonds underperformed futures… imposing significant losses on hedge funds.
That forced the Fed to buy trillions of dollars’ worth of bonds to keep markets running smoothly…
At the time, the trade was roughly $500 billion in total — just a third of what it is today.”
“Liberation day” deleveraging caused a two-week $150 billion contraction in money market fund assets (MMFA).
But the squeeze that morphed into feverish “risk on” leveraging unleashed a $923 billion, 19% annualized, surge in MMFA over the subsequent 37 weeks.
It was nothing short of a dislocation in “repos,” securities funding markets, and marketplace liquidity more generally.
The liquidity tsunami thrust the AI mania/arms race completely off the rails.
From April lows to October highs, Nvidia spiked 145%, Oracle 190%, Alphabet 105%, Meta Platforms 65%, Microsoft 60%, and Amazon.com 60%.
From April lows to December highs, the Semiconductor index surged 116%.
The Goldman Sachs Most Short Index spiked 122%.
January 12 – Bloomberg (Emily Graffeo):
“At least $3 trillion is set to flow into data-center-related investments over the next five years, capital that will rely on the might of multiple areas of the credit markets to provide, according to Moody’s…
Trillions of dollars will need to be invested across servers, computing equipment, data center facilities and new power capacity, and support the boom in artificial intelligence and cloud computing, the ratings firm said…
Much of that capital will come directly from big tech companies, which are facing rising demand for data centers and the power needed to operate them.
Six US hyperscalers — Microsoft Corp., Amazon.com Inc., Alphabet Inc., Oracle Corp., Meta Platforms Inc. and CoreWeave Inc. — are on track to hit $500 billion in data center investments this year, as capacity growth continues, said Moody’s.”
I don’t think we can overstate ramifications from 2025’s liquidity dislocation and AI market euphoria.
For sure, the all-encompassing Credit market boom has only intensified.
January 13 – Bloomberg (Tasos Vossos):
“Global bond borrowers are carrying off the busiest-ever start to a year with barely a hitch.
Buyers are so flush with cash that a wave of new supply has left spreads tighter and valuations higher.
Despite a cascade of more than $424 billion of supply across currencies so far this year, issuers have seen their borrowing costs drop slightly in the first week of 2026…
Cash creation in the US could reach $2 trillion or more in 2026, approaching the fastest pace in five years and injecting liquidity into markets, according to JPMorgan...”
January 16 – Bloomberg (Finbarr Flynn and Ronan Martin):
“Global credit markets are running at their hottest in two decades, prompting some of the world’s biggest money managers… to warn against complacency.
Yield premiums on corporate debt have narrowed to 103 bps, the least since June 2007 amid a resilient economic outlook, a Bloomberg index of bonds across currencies and ratings shows.
That all presents a paradox.
Money managers don’t want to miss out.
But they also must accept a smaller amount of compensation against risks that are increasingly swirling — unpredictable US policy, geopolitical tensions and hidden debts sparking sudden corporate collapses.
‘Complacency should be the scariest word in risk markets right now,’ said Luke Hickmore, an investment director for fixed income at Aberdeen Investments.
‘All you can do is not lean too hard into high-risk areas’.”
Epic Complacency.
It’s not as if 2025 didn’t have alarming moments.
Indeed, there was ample evidence of a historic Credit Cycle long in the tooth.
First Brands and Tricolor were textbook examples of end-of-cycle lending and intermediation nonsense.
There was a flurry of concern about substandard loan underwriting, inflated bond ratings, insurance company risk-taking, off-balance sheet financing, and structured finance more generally – the type of focus that leads to tightened Credit conditions.
And there was a meaningful tightening in leveraged lending and “private Credit.”
The stocks of Blackstone, KKR, Apollo, Blue Owl and Areas Management were all under notable 4th quarter selling pressure.
The AI Bubble sprung its own leaks.
There was some initial Credit market fretting about the massive scope of future funding requirements.
Oracle CDS prices spiked to highs since 2009.
CoreWeave bonds were clocked.
OpenAI financial arrangements elicited some market skepticism.
And future electricity shortfalls became a more pressing issue.
A harbinger of more systemic issues, the cryptocurrencies suffered an acute bout of de-risking/deleveraging.
After rallying from about 75,000 (April lows) to October’s record high of 126,000, bitcoin then sank 35% to November 21st lows.
Many of the scores of cryptocurrencies suffered larger losses.
Trading to a $457 high on July 16th, Strategy’s stock price ended the year at $151.95.
Yet at the end of the day (year), the historic liquidity onslaught masked myriad issues, including festering Credit and AI problems.
Conspicuous excess, however, caught the attention of global financial regulators, including the Bank of International Settlements (BIS), the Bank of England (BOE), and the Financial Stability Board (FSB).
Focus turned to Non-Bank Financial Intermediation (NBFI), including hedge funds and speculative leverage – “global assets in the sprawling shadow banking sector have crossed the $250 trillion mark for the first time.”
While we’ll wait to see 2025 tabulations, the FSB provided remarkable commentary on 2024:
“Hedge fund assets increased 19.2% globally, and the increase in Cayman Islands hedge fund assets accounted for 90.7% of the aggregate increase.”
January 14 – Bloomberg (Greg Ritchie and Tom Rees):
“The UK needs to take action on how much leverage has been accumulated by hedge funds in the gilt market, said Bank of England deputy governor Dave Ramsden, sending a clear signal that officials want to enforce greater oversight.
The BOE’s concerns center on gilt repurchase agreements, or repos, which can be used by investors to borrow sterling against bonds.
Such repos allows hedge funds to use leveraged trading strategies, which officials are concerned pose risks to financial stability if traders unwind their positions simultaneously.
‘Hedge funds play a critical role in the gilt repo market, an essential role, but we’ve got to make sure that their role there is safe,’ Ramsden said…
‘We don’t think the status quo here is an option. Something needs to be done’.”
While the Federal Reserve remained mum on “basis trades” and hedge fund leverage, there was a notable October staff report highlighting the momentous growth in offshore Treasury holdings (popular domains for levered speculation).
“Hedge funds in the Cayman Islands held more Treasuries at end-2024 than US official data show, with their ownership likely to be $1.4 trillion higher than reported…
The funds’ holdings had increased by $1 trillion since 2022 to reach $1.85 trillion by end-December…” (from Bloomberg)
Bouts of trepidation notwithstanding, 2025 proved another banner year for levered speculation.
January 13 – Bloomberg (Nishant Kumar and Liza Tetley):
“Hedge fund investors haven’t had it this good since the aftermath of the global financial crisis.
The $5 trillion industry posted its best returns since 2009 with gains of about 12.6% last year…
Funds run by industry giants D.E. Shaw & Co., Millennium Management, Citadel, Point72 Asset Management and Qube Research & Technologies posted double-digit returns.
Bridgewater Associates, the half-a-century-old investment firm, scored the best-ever gain of 34% in its flagship Pure Alpha II fund.”
Whether it was a hedge fund operator or retail online trader, it became absolutely clear that geopolitical developments and risk must be disregarded.
The worsening Ukraine war and unsuccessful peace negotiations didn’t matter to the markets.
The Israel/Iran/US “twelve day war” was basically irrelevant.
Tariffs and trade war risks could be ignored.
More generally, President Trump’s impulsiveness and folly posed minimal market risk.
Under extraordinary attack, our democracy proved resilient.
According to Pew Research, the President issued at least 221 executive orders.
It was a power grab unlike anything in U.S. history.
And for much of the year, the Trump power onslaught went unchallenged. ABC and CBS bowed. Some major law firms and Ivy League universities capitulated.
District judges pushed back, but the Supreme Court largely fell in line.
State and local governments did their best to fend off the blitzkrieg.
It was an incredible demonstration of power and brute force, one that dissipated over the course of the year.
“The resistance” seemed to gather significant momentum following FCC threats and ABC’s Jimmy Kimmel benching.
We Americans cherish our freedom of speech.
The specter of Donald Trump and Brendan Carr censoring our comedians and television hosts was a wake-up call that our constitutional rights were at risk.
The “No Kings” and other rallies attracted millions of peaceful protesters.
A striking incongruity took shape.
There are President Trump’s cravings for unchecked power, the type he seemingly admires from the likes of Putin, Xi, Viktor Orban, and Kim Jong Un.
Yet his made-for-comedy persona is strikingly at odds with the world’s dictator contingent.
There’s this powerful man, whose behavior makes it difficult to take him seriously.
It’s unimaginable that Putin, Xi, Orban or Kim would be the butt of endless jokes in their respective homelands.
And especially after the “Epstein files” fiasco, cracks emerged in his façade of unbridled power.
Americans are pushing back, with less than 10 months until midterms.
The clock is ticking. And while the jury is out, it increasingly appears the Trump administration’s strategy of a Victor Orban-style power blitzkrieg is falling short.
Perhaps this is a factor in the President’s recent global ambitions, including Venezuela, Greenland, “the hemisphere,” and Iran.
Military adventurism.
Chaos and corruption.
Besmirching the Constitution.
A weaponized Department of Justice.
Comey, James, Bolton, Slotkin, Kelly…
Incredibly, Fed Governor Lisa Cook and even Chair Powell.
And, this evening, Minnesota Governor Tim Walz and Minneapolis Mayor Jacob Frey.
Intimidation and coercion as the modus operandi.
Appalled, most Americans see the administration’s approach as despicably un-American.
How the President responds to waning power is a major issue 2026.
Does he double-down on ICE and deportations, despite the intensifying public outcry?
Could it get to the point where our malcontent President says F… you and flips the midterms the bird?
Might his scorched earth instincts elicit an insurrection act gambit?
Following the 2024 election, I referred to a deeply divided nation – half “nation saved” and the other half “nation doomed.”
At least with respect to President Trump, our nation ended 2025 with less division.
Meanwhile, speculative markets have a way of feeding off loose conditions, succumbing to crazy excess while disregarding escalating risk.
This ensures latent fragilities.
Of course, the President wouldn’t risk upsetting the markets ahead of the midterms, would he?
Markets have never believed that populist policies would ever trump the President’s fixation on the wealthy class and booming financial markets more generally.
Reassessment is in order.
He’s going to be desperate for votes.
A Friday evening Bloomberg headline:
“Wall Street Gives Trump the All-Clear to Push Disruptive Agenda.”
January 13 – Wall Street Journal (Gregory Zuckerman):
“Wall Street thought it had an ally in Donald Trump.
He’s becoming more of an adversary.
The president largely delivered to investors last year, as his administration cut taxes, reduced spending and rolled back an aggressive tariff plan after it spooked markets.
Now, after blindsiding Wall Street with a series of rapid-fire moves in the span of a week, Trump appears to be putting it on notice…
‘Investors thought after the April 2025 tariffs that uncertainty around policy would magically go away,’ says Brad Golding, a hedge-fund manager at Christofferson Robb & Co... ‘
Now, we’re seeing that midterm elections mean more than the profitability of banks and the stability of markets’.”
An incredible 2025 was surely only a warmup for an unbelievable ‘26.
A couple weeks in, “unbelievable” doesn’t ring hyperbole.
Likely an understatement.
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