Table of Contents
There is a French phrase derived from a Nobel Prize-winning author that translates roughly to "it is always the same novel." The implication is that while the details, characters, and settings may change, the underlying plot beats and human behaviors remain constant. This concept applies perfectly to financial markets. Whether we are looking at the volatility of 2025 or looking back at the dot-com bubble, the investing lessons rarely change: don't let fear or greed dictate your actions, stick to your plan, and avoid panic.
However, while the lessons remain static, the market leaders rotate with surprising ferocity. The investment landscape of 2025 has provided a masterclass in market rotation, highlighting a resurgence in commodities, a shift in the artificial intelligence trade from chips to power generation, and a historic divergence between domestic small caps and international markets.
Key Takeaways
- Commodities led the charge in 2025: Silver staged a massive rally, up nearly 170%, significantly outperforming gold and acting as a high-beta play on the precious metals bull market.
- The AI trade has evolved into an energy trade: Investors have moved beyond semiconductors to "pick and shovel" plays in electricity generation, with companies like GE Vernova seeing four-digit percentage gains.
- Small caps are suffering a historic disconnect: The spread between the S&P 600 (US small caps) and developed international stocks is at its widest margin since data tracking began in 2008.
- Wealth concentration is reshaping asset management: Family offices are projected to manage $9 trillion by 2030, potentially overtaking hedge funds in total assets under management.
The 2025 Market Leaders: Commodities and Storage
If you were looking for the best-performing assets of 2025, you might have expected to find the usual high-flying tech names at the top of the list. Instead, the year was defined by a historic run in precious metals and legacy technology hardware. Silver, often viewed as the more volatile cousin of gold, exploded with a 170% gain, while gold itself posted impressive returns of around 70%.
This rally in precious metals occurred simultaneously with a technological boom, creating a unique market environment where defensive "risk-off" assets rallied alongside "risk-on" innovation plays. This challenges the traditional inverse correlation often seen between these asset classes.
Furthermore, the top-performing stocks in the S&P 500 were not the flashy software companies of the previous decade, but rather the infrastructure of the digital age. Companies specializing in storage and memory—such as SanDisk, Western Digital, Micron, and Seagate—dominated the leaderboards. These companies, some of which were staples of the dot-com era, have found renewed relevance as the physical constraints of the AI revolution make digital storage a critical commodity.
"The investing lessons that you give are always going to be the same... don't let the fear of greed get to you, don't panic, don't sell out of your plan."
Conversely, the list of worst performers included household consumer names like The Trade Desk, Lululemon, Target, and Nike. These declines, ranging from 40% to 70%, signal a potential shift in consumer strength or a rotation out of pandemic-era favorites.
Powering the Future: AI and the Energy Grid
The narrative surrounding Artificial Intelligence has shifted from "will it work?" to "how do we power it?" In 2025, the constraint on AI scaling is no longer just about chips; it is about electricity. Data center power consumption is charting exponentially upward, creating a massive tailwind for utility and energy infrastructure companies.
The Rise of the "Power Plays"
While natural gas remains the primary fuel source for electricity generation, the market has aggressively repriced companies capable of upgrading the grid. Fidelity's outlook highlights that the search for potential winners has moved to electricity generation capacity. A prime example is GE Vernova, an energy spinoff that saw its stock rise over 1,000% year-to-date. This performance underscores a market realization: if AI is the gold rush, electricity turbines are the new shovels.
The "All or Nothing" Fallacy
A common mistake in analyzing the AI revolution is viewing it as a binary outcome—either it changes everything overnight, or the bubble bursts completely. The reality is likely more nuanced. Just as the cloud computing era didn't end abruptly but rather integrated into the fabric of business, AI is likely to produce distinct winners, losers, and middle-ground survivors.
"What if it's Google ends up being the winner and OpenAI is the loser... and it's not the whole thing crashes and burns?"
Market observers note that profit margins for the S&P 500 actually increased in 2025 despite massive capital expenditures on AI infrastructure. This suggests that the hyperscalers are absorbing these costs more effectively than bears predicted, keeping the ecosystem robust even as the specific winners rotate.
The Great Divergence: Small Caps vs. The World
One of the most perplexing data points of 2025 is the performance gap between US small businesses and the rest of the world. Data from S&P shows that the 12-month trailing relative return of the S&P 600 (US small caps) versus S&P Developed Ex-US stocks is at its worst level on record.
The spread is approximately 27%, meaning international developed small caps are crushing their US counterparts. For context, the DFA International Small Cap Value fund is up nearly 48% on the year, compared to just 10% for US small cap value. This is not merely a currency fluctuation; it represents a fundamental disconnect.
The Profitability Problem
The root cause of this underperformance appears to be quality and profitability. The profit margins for the S&P 100 (mega-caps) versus the S&P 600 are at an all-time wide spread. S&P 100 companies boast margins around 15.7%, while the S&P 600 struggles at just 5.9%. Until US small caps can close this profitability gap—perhaps through AI implementation or efficiency gains—they may continue to lag behind both their large-cap peers and international competitors.
The Evolution of Wealth: Family Offices and Retirement
The structure of wealth in America is undergoing a significant transformation, visible in both the ultra-high-net-worth space and the retirement accounts of the middle class.
The New Power Players
Family offices—private organizations managing the investments of a single wealthy family—have become the new status symbol and power players on Wall Street. Recent reports indicate these entities oversee $5.5 trillion in wealth, a 67% jump over the last five years. By 2030, this figure is expected to hit $9 trillion, potentially surpassing the assets managed by the entire hedge fund industry.
This shift raises questions about efficiency. While having a dedicated "family office" offers privacy and prestige, it introduces career risk for the internal employees, who may prioritize job security over aggressive investment performance. Nevertheless, the trend highlights the extreme concentration of wealth at the top.
The 401(k) Victory Lap
Contrary to decades of doom-mongering about the "retirement crisis" following the decline of pensions, the 401(k) system has proven remarkably effective. In the late 1970s, defined benefit (pension) plans peaked at 30 million participants. Today, while pensions have dropped to 10 million participants, there are nearly 90 million Americans in defined contribution plans.
Accounting for population growth, more workers have retirement coverage today than at the peak of the pension era. The system has successfully democratized market participation, building a massive reservoir of wealth for the American middle class.
The Sentiment Paradox
Despite strong market returns, wage growth, and a stabilizing economy, consumer sentiment in the US remains bafflingly low. Current indices place consumer sentiment near levels seen in 1980—a time when inflation was 14%, mortgage rates were 18%, and the economy was in a double-dip recession.
There are two probable explanations for this disconnect:
- Broken Data: Response rates for surveys have plummeted, and the methodology may no longer capture the true mood of the nation (garbage in, garbage out).
- The "Vibes" Economy: Social media and the lingering psychological effects of the pandemic and the 2008 financial crisis have permanently altered how the public perceives economic stability.
Additionally, there is a rising cultural tension regarding lifestyle optimization. As data-driven health tracking becomes ubiquitous, there is a risk of over-optimizing one's life at the expense of genuine experiences. The healthiest financial and life decisions often involve maintaining strong relationships, even if it means occasional inefficiency or a "bad night's sleep" according to a wearable tracker.
Conclusion
As we analyze the winners of 2025 and look toward 2026, the market reinforces that while the specific vehicles of growth change—from software to hardware, from gold to silver, from pensions to 401(k)s—the fundamentals of human behavior remain the same. The investors who succeed are not necessarily those who predict every 1,000% gain in a utility stock, but those who recognize that wealth creation is a long game, distinct from the noise of daily sentiment and the allure of over-optimization.
