Can ETF Winners of Q4 of 2025 Rally in Q1 of 2026?

Wall Street put up a modest show in the final quarter of 2025, with the S&P 500 advancing only 1.9%, the Dow Jones gaining 3.3% and the Nasdaq Composite adding about 2.1%. The small-cap index Russell 2000 added 1.6% during that period. Let’s highlight the key happenings of the fourth quarter of 2025.

Three Fed Rate Cuts: Outlook Constrained

There were three Fed rate cuts this year, with the action starting in September. We saw the Fed cutting rates twice in Q4. After three rate cuts in 2025 totaling three-quarters of a percentage point, the Fed offered a controlled outlook for 2026.

Policymakers continue to project just one rate cut next year, consistent with their September forecast. Fed Funds rate is projected to be 3.4%, the same as forecast in September. Fed Funds rates are expected to be 3.1% for both 2027 and 2028. A hawkish Fed is not good for growth stocks as they tend to underperform in a higher rate environment (read: 'A Hawkish Cut' From Fed? ETFs to Gain).

Longest Government Shutdown

The mid-year winning momentum faded suddenly when the longest U.S. government shutdown brought the fourth-quarter economic progress to a halt. The shutdown began on Oct. 1, 2025, after last-minute talks related to a funding plan between lawmakers and President Trump failed and ran till Nov. 12, 2025 (read: US Government Shutdown Puts These ETFs in Focus).

Dealmaking & Divesture in AI

OpenAI continued to hit headlines with partnership momentum in 2025. Oracle, NVIDIA, AMD, CoreWeave and Broadcom are among the companies that joined forces with the maker of ChatGPT in a multibillion-dollar collaboration. OpenAI entered into partnerships with Oracle and NVIDIA in mid-2025. In October, AMD followed suit (read: OpenAI's Dealmaking Spree Puts These ETFs in Focus).

Meanwhile, in its latest earnings report, SoftBank disclosed that it had sold 32.1 million NVIDIA shares in October, marking a major shift in its AI investment strategy. The company also cut its stake in T-Mobile, raising an extra $9.17 billion. The proceeds will fund SoftBank’s $22.5 billion investment in OpenAI (read: Is SoftBank's Nvidia Stake Sale a Strategic Shift? AI ETF Theme Wins).

AI Overvaluation Worries Surface

OpenAI’s Sam Altman, in mid-August, indicated that the artificial intelligence market is in a bubble, according to a report from The Verge, as quoted on CNBC. If this was not enough, the impact of circular financing in the AI space and the payoff timeline of the massive investments made have made investors cautious about the AI plays in recent months.

Seesaw Ride of Cryptocurrencies

Bitcoin prices were off about 6% in 2025. The cryptocurrency underwent steep ups and downs during the year, starting at about $93K, hitting a high of $126K in October and then logging a decline to close out the year. The crypto space has gained strength from Trump’s election.  But worries about high-growth investing hit the space hard in late 2025.

Against this backdrop, let’s find out which ETF investment areas won in Q4 of 2025 and if those can continue the rally in early 2026.

Q4 ETF Winners

Silver

abrdn Physical Silver Shares ETF SIVR – Up 52.1%

iShares Silver Trust SLV – Up 52.0%

Silver prices climbed to fresh highs, supported by supply constraints and strengthening industrial demand. Often considered an industrial metal, silver plays a critical role in modern technologies like AI and clean energy solutions. Additionally, the U.S. dollar remained under pressure in recent months. A weakening greenback is also a favorable factor for commodity prices as they are priced in the U.S. dollar.

Silver is in high momentum. Silver's structural supply deficit and industrial demand give silver higher upside potential. The current scenario is great for a metal rally. Silver stayed steady for much of 2025 and silver’s catch-up rally from Q4 should prolong as the operating backdrop is in its favor. However, high valuations may play spoilsport.

Biotech

Virtus LifeSci Biotech Clinical Trials ETF BBC – Up 43.7%

ALPS Medical Breakthroughs ETF SBIO – Up 31.8%

The biotech market has regained momentum lately, driven by favorable regulatory developments and cheaper valuations. The Fed’s rate cuts have also improved funding conditions, and the increasing adoption of AI in U.S. healthcare continues to provide a meaningful tailwind for the sector.

Solid deal making activities and a steady flow of FDA approvals are other positives for the sector. The outlook looks bright for the space. Even after the recent rally, the valuation is cheaper for the space. The biomedical and Genetics industry trades at a forward P/E of 18.88X versus 20.02X forward P/E possessed by the S&P 500 (read: Biotech ETFs Hovering Around a 52-Week: Here's Why).

Lithium Miners

Sprott Lithium Miners ETF LITP – Up 33.4%

iShares Lithium Miners and Producers ETF ILIT – Up 31.4%

Rising global demand for electric vehicles and energy storage is driving the space. China commands over half of the world’s lithium refining capacity, putting Western economies in a vulnerable position. The U.S. government is striving to reduce dependency.  

Also, Beijing indicated that it would double EV charging capacity to 180 gigawatts by 2027, boosting lithium-rich energy storage systems, as quoted on Trading Economics. The movement ahead for the space should be steady. The key Chinese producer Ganfeng Lithium Group Co forecast demand growth of 30% or even 40% for the battery metal in 2026, as quoted on Reuters.

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This article originally published on Zacks Investment Research (zacks.com).

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