NEW YORK — It was a scary good year for investors.
It was scary because the U.S. stock market plunged to several historic drops on worries about everything from President Donald Trump’s tariffs to interest rates to a possible bubble in artificial-intelligence technology. In the end, though, it was a great year for anyone with the stomach to stick through the swings.
S&P 500 index funds, which sit at the heart of many savers’ 401(k) accounts, returned more than 18% in 2025 through Dec. 11 and set a record high that day. It’s their third straight year of big returns.
Here’s a look at some of the surprises that shaped financial markets along the way:
Trump dropped the biggest surprise on “Liberation Day” in April, when he announced a sweeping set of tariffs that were more severe than investors expected.
It immediately triggered worries about a possible recession and spiking inflation. The S&P 500 plunged nearly 5% on April 3 for its worst day since the 2020 COVID crash. The very next day, it dropped 6% after China’s response raised fears of a tit-for-tat trade war.
The tariffs’ impact went beyond the stock market. The value of the U.S. dollar fell, and fear even shook the U.S. Treasury market, which is seen as perhaps the safest in existence.
Trump eventually put his tariffs on pause on April 9 after seeing the U.S. bond market get “queasy,” as he put it, which sent relief through Wall Street. Since then, Trump has negotiated agreements with countries to lower his proposed tariff rates on their imports, helping calm investors’ nerves.
Wall Street motored higher through a remarkably calm summer thanks to euphoria around artificial-intelligence technology and strong profit reports from companies. The market also got a boost from three cuts to interest rates by the Federal Reserve.
Trade worries can still cause havoc in markets, and Trump sent stocks spiraling as recently as October with threats of higher tariffs on China.
Another surprise was how hard, and how personally, Trump lobbied to get the Federal Reserve to lower interest rates.
The Fed has traditionally operated separately from the rest of Washington, making its decisions on interest rates without having to bend to political whims. Such independence, the thinking goes, gives it freedom to make unpopular moves that are necessary for the economy’s long-term health.
Keeping interest rates high, for example, could slow the economy and frustrate politicians looking to please voters. But it could also be the medicine needed to get high inflation under control.
As inflation stubbornly remained above the Fed’s 2% target, the central bank kept rates steady through August. This drew Trump’s ire – even though it was his own trade policies that were driving fears about inflation higher.
Trump continuously picked on Fed Chair Jerome Powell, even giving him the nickname “Too Late.” Their tense relationship reached a head in July when Trump, in front of cameras, accused Powell of mismanaging the costs of a renovation of the Fed’s headquarters. Powell, in turn, shook his head.
Even though Wall Street loves lower rates, the personal attacks caused som