US Equities Poised for 2025: Large-Cap Power, IPO Surge & Macro Risks

As we enter 2026, financial markets are carrying strong tailwinds from the last months of 2025, largely driven by promising corporate earnings and AI-sector enthusiasm. Benchmark indices—all three major U.S. equity indexes—ended 2025 with double-digit returns driven by large-caps, particularly in tech.

Portfolio shifts have been significant: investors funneled substantial capital into large-cap funds in the final weeks of 2025, while avoiding small-/mid-caps and bond funds amid expectations of rate instability and inflation persistence. Money market inflows suggest a degree of risk aversion amidst the optimism.

Looking to the near term, macroeconomic indicators—most notably the U.S. non-farm jobs report due January 9—pose one of the first real tests of market conviction. With unemployment at a four-year high (~4.6%), under-whelming job gains could amplify concerns about recession risks. Inflation data, including PCE figures and wage growth, will likewise be scrutinized for signs of disinflation or stubborn price pressures.

On the supply side, IPOs and M&A activity are projected to remain elevated. IPO issuance in 2025 through November ($33.6B raised across 72 IPOs) has already surpassed full-year totals of recent years; AI infrastructure and cybersecurity names are leading this trend. Meanwhile, major firms such as Jefferies are recovering from earlier credit stress after exposure to failed managed funds, with projected earnings and a tighter margin profile.

Strategically, investment banks should focus on areas with AI tailwinds—infra, compute, hardware, cybersecurity—and also monitor sectors likely under pressure as sentiment shifts (e.g. small/mid-caps, rate-sensitive sectors). Balance sheets are likely to be tested if rate cuts pause or reverse amid sticky inflation. Also, regulatory/tariff developments—including Supreme Court rulings and trade policy—are potential wild cards that may affect pricing, supply chains, and international deal flows.

Open questions that remain: Can market gains be sustained if job growth disappoints? Will inflation moderate enough to enable meaningful Fed rate cuts? How will sector rotation play out—will tech continue leading, or will value and financials reclaim ground? And tangentially, what is the impact of tariffs and regulatory decisions on corporate cost structures and cross-border M&A?