2025 Market Outlook: Running with the Rebound
Each year at our January Economic & Market Outlook, we offer our perspective and predictions on the year ahead. As we stated at the start of this year, we believe in a strong finish to 2025. That remains our view. The initial dip, headlined by tariffs and Middle East conflict, has dissipated and we’ve now seen all-time highs in stocks.
On the bond side, sound credit conditions and low default rates are encouraging for bond investors. Yields remain attractive as interest rates remain steady; we see short- and intermediate-term bonds offering reasonable income for the given level of risk.
On the stock side, market optimism is growing after the turnaround from Trump’s tariffs; that is propped up by easing inflation, a more predictable (some might say glacial) Federal Reserve, improving consumer sentiment, and strong corporate earnings. Sectors like industrials, communication services, and technology are leading the gains year-to-date.
2026 Market Outlook: Growth Momentum Builds
Looking ahead to 2026, we’re optimistic that the growth momentum will continue. In the bond market, we anticipate the Fed will finally approve rate cuts, which should support higher bond prices (when interest rates fall, existing bond values typically rise). For stocks, earnings growth is expected to strengthen as companies reinvest in their businesses. Innovation continues to create new opportunities – breakthroughs in AI, biotechnology, and clean energy (among others) are not only exciting developments in themselves but are also expanding the investment landscape. This offers Faith Investor Services fresh investment possibilities in 2026 and beyond.
As always, we expect to see volatility along the way, but we view those market swings as opportunities – periodic pullbacks give disciplined investors a chance to rebalance portfolios and to buy into attractive positions at lower prices, hopefully setting the stage for long-term gains.
One Big Beautiful Bill Act Tax Legislation Update
Major legislation was signed by President Trump on July 4, 2025. There were no changes to individual tax brackets or rates – reversion to a more simplified format unfortunately did not materialize. There was no increase to long-term capital gains rates, meaning the feared hike on investment income was not included. Additionally, current estate tax rules stay in place, which means estate taxes will not be paid at the federal level until assets reach $15 million per person. Corporate tax rates were untouched, but the bill introduces credits for domestic manufacturing and clean energy investments, which could benefit certain sectors.
OBBBA – What It Means for You
- The bill includes an “above-the-line” charitable contribution deduction for taxpayers who don’t itemize. This means individuals who take the standard deduction can still deduct up to $1,000 ($2,000 for married filing jointly) in cash contributions to qualified charities
- Tips and overtime are not taxed up to $25,000 at a federal level through 2028
- Permitted use of 529 education savings account funds to include K-12 expenses related to tutoring, textbooks, test preparation, online learning and homeschool materials
- A new deduction for interest paid on loans for US-assembled vehicles through 2028, capped at $10,000 annually, and taken regardless of itemizing
- A $6,000 deduction in addition to the standard deduction for individuals aged 65 and older is installed through 2028. This will help lower tax liabilities, including those related to Social Security, though the underlying tax rules for Social Security benefits remain unchanged
- Higher SALT (state and local tax) deduction of $40,000 through 2030 for households itemizing on their tax return with less than $500K income
- New “Trump Accounts” for newborns – $1,000 initial contribution is government funded
- Permanent expensing for R&D, restoration of 100% bonus depreciation, and expanded 179 and QBI deductions – a positive addition for business owners
Please don’t hesitate to reach out if you have any questions.
