Wealth management
The 2025 financial story in 5 charts—and what it means for 2026
Five key charts reveal the economic forces shaping markets today and offer crucial insights into what investors can expect in the year ahead.
If a picture is worth a thousand words, just imagine what five are worth. With that in mind, and with 2025 drawing to a close, we’re sharing five charts that tell the financial story of 2025—and also hint at what may be to come for the economy and markets in 2026.
1. The “why” matters when it comes to the Fed cutting rates.
Investors are closely monitoring whether the Federal Reserve (Fed) continues to cut interest rates. But as our first chart shows, why the Fed is cutting rates may be more important than whether the Fed keeps cutting rates.
Historically (at least from January 1983 through September 2025), stocks performed well when rate cuts were motivated by the Fed seeking to normalize rates following a period of fighting inflation, rather than defending the economy from recession. When rate cuts were motivated by normalization, the S&P 500 equity index recorded average cumulative returns of 50% at the end of the two-year period following the initial rate cut. History may be repeating itself, as the cumulative return for the S&P 500 is 20% since the Fed began cutting rates in September 2024.
But there’s a wrinkle. Economic growth has been ticking down this year while the unemployment rate has been ticking up. Should these negative trends accelerate, the Fed’s motivation for cutting rates could shift from normalizing rates to preventing a recession. Were this to happen, history doesn’t bode nearly as well for stocks. When Fed rate cuts have been designed to stave off recession, the S&P 500’s cumulative returns were -20% at the end of the two-year period following the initial rate cut.
The chart shows the cumulative return of the S&P 500 Index over a two-year period following an initial Fed rate cut across different rate-cutting environments. Source: Morningstar Direct; S&P 500 Price Index; daily returns; 1/1/1983 – 9/30/2025. Normalization rate cut regimes include those beginning on 9/3/1984, 6/5/1989, and 7/6/1995. Recession rate cut regimes include those beginning on 7/13/1990, 1/3/2001, 9/18/2007, and 3/4/2020. Current rate-cutting cycle began on 9/17/2024. The analysis for normalization and recession covers from September 1983 through March 2022, which is two years after the March 2020 rate cuts implemented to stave off recession, while the current cycle runs through 9/30/2025.
2. Spending on AI has skyrocketed.
The second chart offers a window into how AI is changing the economy. Whereas spending on other types of construction has declined or flatlined since 2023, construction spending tied to AI data centers has exploded—nearly tripling in three years.
The building boom reflects the massive capital investments hyperscalers are making to address projected demand for AI. Of course, as with any transformative technology, change carries risks for other sectors of the economy. AI requires significant computing power, for example, and the data centers providing this computing power consume an immense amount of electricity. It’s one reason why electricity prices have soared 35% since the start of 2021.1
Consumer spending proved resilient this year, but rising utility bills could challenge that resilience—particularly among lower-income consumers. “This huge surge in electricity demand is one key example of how the historic wave of investments behind the AI revolution might be having a ‘crowding out’ effect on other sectors of the economy, including consumers,” Niladri “Neel” Mukherjee, TIAA Wealth Management’s chief investment officer,
AI also poses risks to the labor market, especially if productivity gains are achieved by trimming payrolls. The unemployment rate for people in the 20-to-24 age group has risen by almost three percentage points over the past two years, according to Mukherjee. His takeaway: “AI may already be impacting jobs that are easier to replace, such as many process-oriented entry-level jobs.”
Source: U.S. Treasury, TIAA Wealth Chief Investment Office. Data through 7/31/2025.
3. Interest payments on public debt continue to soar.
Long-term interest rates have fallen, providing some relief to the private sector. Average rates on 30-year mortgages, for example, have declined from 7.76% in October 2023 to 6.22% this November.2 The potential for further declines, however, may be limited by a variety of factors, all contributing to the upward trajectory in global debt: insatiable demand for capital associated with AI and green energy investments, an aging population requiring larger Social Security and health care payments, and the stubborn effect of rising interest payments.
As our third chart shows, U.S. interest payments on federal debt as a percentage of nominal GDP are projected to climb from below 2% in 2022 to 4.4% in 2035. This translates to heavier debt issuance and stickier long-term yields because increasing the bond supply puts downward pressure on bond prices (and upward pressure on bond yields). The Congressional Budget Office (CBO) has already sounded the alarm. The growing federal debt “has significant economic and financial consequences,”
The chart shows interest payments by the federal government on its debt as a percentage of gross domestic product (GDP)—past and forecasted. Source: FactSet Financial Data and Analytics, CBO, TIAA Wealth Chief Investment Office. Projections through 12/31/2035. CBO forecast data is right of the dotted line.
4. Tariff revenues are rising—but at what cost to the economy?
President Trump’s tariff policies seem motivated by three goals: drawing trade partners to the negotiating table, shrinking the U.S. goods trade deficit, and raising tax revenue to fund the administration’s tax cuts. So far, so good when it comes to raising revenue, as the fourth chart shows.
However, Trump’s trade policies carry economic risks. Higher tariffs act as a tax increase, weighing on businesses’ profit margins and households’ purchasing power. Businesses are also contending with legal uncertainty over whether the tariffs will even remain in place. In May, the Court of International Trade blocked most of President Trump’s tariffs—all but the product-specific ones—and the case is now before the U.S. Supreme Court. Mukherjee believes some businesses may choose to pause hiring or suspend capital expenditure plans until they have more certainty around tariff rates moving forward.
Source: U.S. Treasury, TIAA Wealth Chief Investment Office. Data through 9/30/2025.
5. If you haven’t already, diversify your portfolio with non-U.S. stocks.
It’s no secret U.S. investors favor U.S. stocks. For years, global investors have significantly overweighted U.S. stocks too.
But as our fifth chart shows, it could be time to rethink investing in non-U.S. stocks. Stock market supremacy tends to run in multiyear cycles. A combination of cheaper valuations and improving fundamentals could continue to support an investor rotation into non-U.S. stocks over the next few years. This could gradually cause the trailing five-year returns of the U.S. Russell 1000 versus the international MSCI EAFE stock indexes to flip in favor of the latter after a decade-long outperformance by U.S. equities.
More U.S. protectionism, smaller U.S. immigration flows, greater fiscal stimulus by European countries (Germany in particular), and the rise of a less U.S.-centric ecosystem for AI all make the case for owning non-U.S. stocks—even if it’s only for diversification. “Global diversification isn’t about chasing last year’s winners,” says John Canally, chief portfolio strategist for TIAA Wealth Management. “It’s about building resilient portfolios for whatever may come next.”
Source: Bloomberg, TIAA Wealth Chief Investment Office. International stock returns are represented by the MSCI EAFE Index and U.S. stock returns by the Russell 1000 Index. Data as of 9/30/2025.
Navigate markets with personalized advice
For more insights on market and economic conditions—and to discuss the implications for your investment portfolio and financial plan—talk to your TIAA Wealth Management advisor. Don’t yet have an advisor?
Get personalized investment advice
Our wealth management advisors can evaluate your full financial picture to optimize your investment strategy and protect your portfolio against market risks.
Call
Articles you might find helpful
CIO Perspectives | International trends: Staying vigilant and diversified
TIAA’s Wealth CIO examines the strong outperformance of international equities year-to-date and their outlook as the U.S. dollar stabilizes.
New tax law changes: What to know for 2025 and beyond
The latest tax law offers new breaks for people who take the standard deduction, making itemizing easier and charitable giving more complicated.
How securities-backed lines of credit help with buying a home in retirement
Buying a home in retirement can be tricky. Discover why securities-backed lines of credit can solve this dilemma by letting you borrow against your investments.
1 As measured by the Electricity Price (CPI basket) index. Source: Bloomberg and TIAA Wealth Management Chief Investment Office.
2 Freddie Mac. “Mortgage Rates Broadly Flat.” Freddie Mac, Nov. 13, 2025,
This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances, which should be the basis of any investment decision.
Optional discretionary investment management services for a fee are provided through two separate managed account programs by TIAA affiliates: the Portfolio Advisor program offered by the Advice and Planning Services division of TIAA-CREF Individual & Institutional Services, LLC (“Advice and Planning Services”), a broker-dealer (member FINRA/SIPC), and SEC registered investment adviser; and the Private Asset Management program offered by TIAA Trust, N.A. Please refer to the disclosure documents for the Portfolio Advisor and Private Asset Management programs for more information. TIAA Trust, N.A. provides investment management, custody and trust services. Advice and Planning Services provides brokerage and investment advisory services for a fee. Investment Management Group (IMG) is the investment management division of TIAA Trust, N.A., and provides the underlying investment management services to the Portfolio Advisor and Private Asset Management programs. TIAA Trust, N.A. and Advice and Planning Services are affiliates, and wholly owned subsidiaries of Teachers Insurance and Annuity Association of America (TIAA). Each entity is solely responsible for its own financial condition and contractual obligations.
The TIAA group of companies does not provide tax or legal advice. Tax and other laws are subject to change, either prospectively or retroactively. Individuals should consult with a qualified independent tax advisor and/or attorney for specific advice based on the individual’s personal circumstances.
All investments involve some degree of risk, including loss of principal. Investment objectives may not be met. Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio.
ASSET ALLOCATION AND DIVERSIFICATION ARE TECHNIQUES TO HELP REDUCE RISK. THERE IS NO GUARANTEE THAT ASSET ALLOCATION OR DIVERSIFICATION ENSURES PROFIT OR PROTECTS AGAINST LOSS.
Past performance is no guarantee of future results.
Investing involves risk and the value of your investments may gain or lose value and fluctuate over time. Generally, among asset classes, stocks are more volatile than bonds or short-term instruments and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Although the bond market is also volatile, lower-quality debt securities including leveraged loans generally offer higher yields compared to investment grade securities, but also involve greater risk of default or price changes. Foreign markets can be more volatile than U.S. markets due to increased risks of adverse issuer, political, market or economic developments, all of which are magnified in emerging markets. Foreign securities are subject to special risks, including currency fluctuation and political and economic instability.