2025 Market Performance Analysis: Passive Investors Fare Well, Foreign Stocks Outperform

This analysis is based on the Wall Street Journal report [4] published on 2025-12-28, examining 2025 market performance dynamics. U.S. indices delivered solid gains: S&P 500 (+17.39%), Dow (+14.18%), Nasdaq (+21.59%) [0]. Foreign stocks, measured by the Vanguard Total International Stock ETF (VXUS), outperformed with a +28.41% return [0], consistent with the article’s claim that passive investing (doing “nothing”) yielded strong results for both U.S. and international equity holders. A softer U.S. dollar in 2025 was a key driver of international market outperformance [1]. U.S. sector performance was led by Communication Services (+34.28%), Technology (+21.04%), and Industrials (+20.45%) [3], reflecting tech-driven gains noted by Bloomberg [2].

Active stock picking faced significant challenges in 2025, with a narrow group of tech stocks driving U.S. index gains, leading to a trillion-dollar exodus from active funds [2]. This trend underscores the sustained appeal of passive investing strategies amid concentrated market returns. The weaker U.S. dollar’s impact on international equities highlights the importance of currency dynamics in global portfolio performance.

Concentrated gains in a small number of tech stocks could increase market volatility [2], while currency fluctuations may reverse international equity outperformance if the U.S. dollar strengthens.
Passive investing strategies continue to offer consistent returns in a market dominated by sector-specific leadership. Diversifying into international equities may provide growth opportunities amid favorable currency conditions.

• U.S. indices (S&P 500, Dow, Nasdaq) delivered 14.18-21.59% returns in 2025 [0].
• Foreign stocks (VXUS) outperformed with a 28.41% gain, boosted by a weaker U.S. dollar [0][1].
• Active funds experienced significant outflows ($1 trillion) due to concentrated tech-driven gains [2].
• Communication Services and Technology led U.S. sector performance [3].