The Year at a Glance
2025 has surprised almost everyone — markets entered the year with consensus pricing in a material slowdown, and the actual path has been one of resilience in equities, repricing in Treasuries, and continued rotation within the sector mix.
Equities
- Large-cap indices finished most quarters above consensus targets.
- Dispersion across sectors has widened, with concentrated mega-cap strength continuing.
- Small- and mid-caps have lagged — a pattern now long enough to affect peer-set construction for valuation work.
Treasuries
- Yields remained above 4% for the majority of the year.
- The yield curve has continued to normalize from the inversion of the prior cycle.
- Credit spreads have tightened, suggesting continued risk appetite.
What This Means for Valuations
- Discount rates are higher in absolute terms than much of the prior decade.
- Terminal-value multiples should reflect that rates are unlikely to revisit the 2020–2021 lows in a central scenario.
- Peer selection increasingly needs to account for the performance dispersion across mega-, large-, and small-cap.
Bottom Line
Markets in 2025 have rewarded selectivity. A valuation that assumes broad-market tailwinds without naming them is not a valuation, it's a forecast disguised as one.