2025 has been a great year for both stock and bond markets, with key equity benchmarks at record highs and bond gains despite high inflation. Job market weakness led to lower bond yields. High-yield bonds and long-term Treasuries also performed well, making it the best year for bonds since 2020.

For 60/40 portfolios, 2025 was a success as both stocks and bonds saw gains. The 60/40 strategy aims for diversification, and in a year like 2025, where both stocks and bonds rose, the strategy proved effective. The Morningstar US Moderate Target Allocation Index is on track for a 15% return, double the average from 2005-2024.

The US dollar weakened in 2025, benefiting non-US investments. Emerging-market stock funds saw strong returns due to the currency impact. The dollar weakening trend may continue in 2026, driven by rising US debt and economic uncertainties. Hong Cheng from Morningstar Investment Management provides insights on the dollar’s outlook.

The holiday week ahead is expected to be quiet for trading, with New Year’s Eve being a full day for stocks but only a half day for bonds. The next major event is the December employment report on Jan. 9, which could influence the Fed’s decision on rate cuts. As we wrap up 2025, the focus shifts to the outlook for 2026.

Read more at Morningstar: Markets Brief: A Solid Year for Bonds and 60/40 Portfolios