Markets have a funny habit of doing the exact opposite of what headlines suggest they should do. Vanguard’s latest Q4 2025 commentary1 leans into that tension right away, opening with the familiar idea that bull markets climb a wall of worry. In this case, that wall wasn’t just tall—it was crowded with fears. And yet, markets kept moving higher.
As Francis M. Kinniry Jr., Colleen Jaconetti, and David J. Walker frame it, Q4 2025 unfolded against a backdrop of unsettling signals: rising job cuts, consumer sentiment stuck near historic lows, and what became “the longest U.S. government shutdown in history.” None of that reads like a recipe for strong returns. Still, “risk assets maintained their upward trajectory in the fourth quarter.” U.S. equities gained roughly 2% during the quarter and about 16% through December 18, while even broad fixed income posted gains of around 1%.
That contrast is the heart of Vanguard’s message. Markets didn’t rise because the world suddenly felt safe or optimistic. They rose despite widespread anxiety. And, as the authors are careful to note, “the path to those returns was far from linear.” Volatility was part of the journey, not a footnote.
The year itself tells that story. After peaking in February, U.S. equities fell nearly 19% by early April, officially entering correction territory. From there, the rebound was dramatic: a roughly 38% gain from the lows and an extraordinary run of 39 separate all-time highs by late December. That kind of snapback underscores a point Vanguard emphasizes repeatedly: markets price risk continuously, even when investors feel uneasy.
Put simply, fear doesn’t stop markets from working. As Vanguard reminds readers, “equity returns are rarely as expected and seldom near their long-term averages.” Returns scatter widely around the mean, and discomfort is often the price of participation. For advisors, this isn’t abstract theory—it’s core client-conversation material.
Importantly, this wasn’t just a U.S. story. Non-U.S. equities outperformed meaningfully in 2025, returning close to 29% by mid-December. Bonds, long dismissed in low-yield environments, also played their role, with U.S. aggregate bonds returning about 7%. Balanced portfolios benefited, reinforcing Vanguard’s steady refrain that diversification, discipline, and long-term focus still matter when emotions run high.
The article then shifts from returns to behavior—specifically, rebalancing. Advisors largely did what they’re supposed to do, but strong equity performance pushed many portfolios toward historically high equity weights. Vanguard notes that “equity allocations were near their peak levels … as of November 30, 2025,” suggesting that additional rebalancing from equities into fixed income may be necessary heading into 2026.
That’s easier said than done. Selling what has worked—especially after a year of strong gains—runs directly against investor instincts. Vanguard doesn’t pretend otherwise. Instead, the authors point to practical, tax-aware ways to manage risk without triggering unnecessary costs, including tax-loss harvesting, direct indexing, and using new cash flows to gradually rebalance.
Looking ahead, the tone remains deliberately humble. Vanguard isn’t offering bold market calls or precise forecasts. The emphasis is on planning, not predicting. Conversations should focus on revisiting risk tolerance, reassessing asset allocation, and reinforcing why staying the course matters. As the authors put it, “By leveraging history as a guide, you can remind clients that staying the course … has historically served to mitigate risk and improve long-term returns.”
The takeaway is clear: 2025 wasn’t proof that worry disappears in bull markets. It was proof that markets and worry coexist. Headlines will always shout. Sentiment will swing. What ultimately matters is whether investors—and their advisors—stick to a disciplined process when discomfort shows up.
Footnote:
1 Vanguard. Kinniry, Jaconetti & Walker. "Q4 2025: Markets continue to climb a wall of worry." 5 Jan. 2026.
