AI boom underpinned US markets' rise in 2025

The S&P 500 gained 16.4% last year. But dependence on artificial intelligence remains a risk for 2026, writes Joe Rennison from New York

- Joe Rennison

At a glance, US stocks ended 2025 pretty much where analysts expected they would. But it was a bumpy ride getting there.

A year ago, analysts predicted that the market would rise steadily, economists forecast cuts to interest rates and, in the wake of President Donald Trump's reelection, market watchers broadly expected a business-friendly policy environment that would benefit the economy.

Twelve months on, the S&P 500 has climbed 16.4%, the Federal Reserve has cut interest rates by three-quarters of a percentage point and, while there are emerging signs of weakness and intensifying concerns about the cost of living for the poorest people in the country, the economy seems in OK shape.

But for investors and traders who lived and breathed the market over the past year, this was anything but a smooth and predictable journey. The S&P 500 limped to a 0.7% drop on the final day of the year, its fourth consecutive day of losses.

In the end, the rally largely came down to one big idea: that artificial intelligence will be a generational force underpinning the stock market, because of the scale of investment needed to build the infrastructure that powers it and the technology's expected productivity gains.

"If technology felt good, equities were on a tear," said Cindy Beaulieu, chief investment officer for North America at the investment manager Conning. "If technology didn't feel so good, well..."

A ROUGH START

Last year started with inflation worries and the revelation that a Chinese company had developed competitive AI technology at a far lower cost than American businesses were doing.