U.S. Stock Funds Gain 12.6% in 2025 Amid Strong Year-End Rally

U.S. stock funds concluded the year with a 12.6% cumulative return as of December 7, 2025, reflecting a powerful final-month surge that lifted broader market indices into positive territory for the year. The rally was driven by sustained investor confidence in corporate profitability, particularly in technology, healthcare, and consumer discretionary sectors, which delivered double-digit gains in the fourth quarter. The 12.6% year-to-date return represents a significant rebound from the modest 1.3% gain recorded through the first three quarters. Key benchmarks such as the S&P 500 gained 17.2% for the year, while the Nasdaq Composite rose 22.1%, underpinning fund performance. The strong finish was supported by a shift in Federal Reserve policy expectations, with markets pricing in two rate cuts by mid-2026, easing borrowing costs and boosting equity valuations. Investor inflows into U.S. equity funds reached $68 billion in November alone, the largest monthly net inflow since January 2023. This influx, combined with a 14.8% increase in the MSCI USA Index over the past 12 months, highlights growing appetite for domestic equities despite elevated valuations. Large-cap funds outperformed mid- and small-cap categories, with the Russell 1000 Index gaining 15.3% compared to 9.7% for the Russell 2000. The rally has broadened market participation, with 72% of S&P 500 companies reporting earnings above consensus in Q3 and Q4. This performance has also influenced asset allocation strategies, as pension funds and asset managers adjusted portfolios to lock in gains ahead of the year-end. The strong finish may influence 2026 investment outlook, with many institutional investors scaling up equity exposure.