GDP, or Gross Domestic Product, is one of the key ways to measure activity in the economy. While the economy and the stock market are not the same thing, healthy consumer spending, business investment, government spending, and trade all contribute toward supporting stock market valuations and prices in the long run.
Here are some key points to consider:
- Real GDP grew at just 0.7% annually in the fourth quarter of 2025, revised sharply down from a prior estimate of 1.4%. This is also well below the third quarter 2025 pace of 4.4%, with full-year 2025 GDP coming in at 2.1%. This revision is due to slower consumer spending growth of 2.0% in Q4, down from 3.5% in Q3.
- Even though consumer spending was slower than expected, it was still the largest positive contributor to economic growth in the fourth quarter, adding 1.3 percentage points. Business investment contributed 0.6 percentage points, while trade reduced it by 0.2 and government spending by just over one percent.
- These figures do not include the recent jump in oil prices, which could create greater uncertainty for consumers and businesses. Recent inflation numbers have been mixed with the Consumer Price Index rising 2.4% over the past year and the Personal Consumption Expenditures index climbing 2.8%. Core CPI and Core PCE are both higher than the headline numbers, coming in at 2.5% and 3.1%, respectively.
- Slower economic growth is consistent with the weakening labor market and heightened fears of a “K-shaped” economy where some individuals are benefiting while others are struggling. At the same time, corporate earnings remain strong, which has supported broad financial market valuations.
The included chart shows U.S. economic growth components over the past few quarters, providing helpful context for understanding how the current slowdown compares to historical patterns and business cycles.
While short-term economic softness can feel unsettling, history shows that patient, diversified investors who stay focused on long-term goals are generally better positioned to weather periods of slower growth and market uncertainty.
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