Video: Alger's Equities 2025 Review and 2026 Outlook
What were the forces that shaped the stock market in 2025, and where do we stand in today’s market cycle as artificial intelligence continues to shape business investment?
Brad Neuman: I’m Brad Neuman, Alger’s Director of Market Strategy. In this video, we’ll dive into the forces that shaped the stock market in 2025 and explore what could be next for equities.
In 2025, U.S. equities returned a robust 17.9%. This chart breaks the return of the S&P 500 into three components: dividends, earnings growth, and changes in the market’s price-to-earnings multiple. As shown here, last year’s gain was driven primarily by strong corporate earnings growth of 13.6%, not investor enthusiasm.
While strong earnings growth was the key driver of last year’s gains, understanding where we stand in the broader economic and market cycle is just as important. In a historical context, neither the economic expansion nor the bull market is unusually long.
Economic expansions have lengthened over time, as shown on the left. The current one is under six years old—well below the recent nine-year average—suggesting more growth ahead. On the right, the bull market that began in October 2022 is just over three years old, still younger than historical norms, leaving room for further price appreciation, in our opinion.
But this is no ordinary bull market; it is marked by what we believe is one of the greatest advances of our lifetime: generative AI, analogous to the advent of the internet in the 1990s. After the December 1994 launch of Netscape, the browser that made the Internet accessible to ordinary users for the first time, Internet enthusiasm fueled years of strong U.S. stock market gains, similar to today’s environment following ChatGPT’s debut in November 2022.
In fact, the performance of the Nasdaq three years post-Netscape resembles the past three years post-ChatGPT as shown in this chart.
In our view, this places us at a moment similar to early 1998—already three years into a powerful, technology-driven bull market with gains exceeding 110%. Back then, the Nasdaq didn’t stop; it surged another 220% to its peak, even after those initial explosive years.
We believe that while the internet buildout hit a wall in the early 2000s, the AI investment boom is more sustainable because it’s funded by profitable companies, not debt, as these charts show.
Furthermore, utilization of data center capacity is very high now, in contrast to the internet buildout where fiber and equipment was deployed far in advance of demand as shown here.
We believe that AI is currently having, and will continue to have, a more meaningful impact on the economy quicker than the Internet did. It took 16 years for the internet to reach a similar adoption level to what generative AI has done in 3 years. According to researchers from the Federal Reserve, AI is already saving the economy 2% of hours worked, a much larger impact than the early internet which was little more than email and extremely slow web browsing in its early days.
The bigger picture is that this AI revolution is helping to drive an American business spending boom that is being supported by economic policy, in our view. Trade policy is accelerating onshoring by pushing companies to avoid tariffs, directly leading firms to build new U.S. factories, while fiscal incentives like immediate equipment and factory expensing are lowering the cost of new business projects. Monetary policy is reinforcing the cycle as lower interest rates reduce borrowing costs at a time when corporate balance sheets are strong. With approximately $10 trillion in announced private fixed investment, we believe this alignment of forces is set to lift productivity, expand industrial capacity, and increase employment, creating a durable tailwind for the economy, earnings, and stocks in 2026.
Once again, I’m Brad Neuman and on behalf of all of us at Alger, thank you for your interest.
The views expressed are the views of Fred Alger Management, LLC (“FAM”) and its affiliates as of January 2026. These views are subject to change at any time and may not represent the views of all portfolio management teams. These views should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by FAM. These views are not meant to provide investment advice and should not be considered a recommendation to purchase or sell securities.
Risk Disclosures: Investing in the stock market involves risks, including the potential loss of principal. Growth stocks may be more volatile than other stocks as their prices tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments. Past performance is not indicative of future performance. Investors whose reference currency differs from that in which the underlying assets are invested may be subject to exchange rate movements that alter the value of their investments.
Companies involved in, or exposed to, AI-related businesses may have limited product lines, markets, financial resources or personnel as they face intense competition and potentially rapid product obsolescence, and many depend significantly on retaining and growing their consumer base. These companies may be substantially exposed to the market and business risks of other industries or sectors, and may be adversely affected by negative developments impacting those companies, industries or sectors, as well as by loss or impairment of intellectual property rights or misappropriation of their technology. Companies that utilize AI could face reputational harm, competitive harm, and legal liability, and/or an adverse effect on business operations as content, analyses, or recommendations that AI applications produce may be deficient, inaccurate, biased, misleading or incomplete, may lead to errors, and may be used in negligent or criminal ways. AI companies, especially smaller companies, tend to be more volatile than companies that do not rely heavily on technology.
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Price-to-earnings is the ratio for valuing a company that measures its current share price relative to its earnings per share.
Earnings per share (EPS) is the portion of a company's earnings or profit allocated to each share of common stock.
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The following positions represented the noted percentages of firmwide assets under management as of October 31, 2025: Microsoft Corporation, 8.55%; Alphabet, Inc., 3.25%; Amazon.com, Inc., 5.56%; Meta Platforms, Inc., 4.43%; and Oracle Corporation, 0.43%.
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