Stocks strt the year in a positive mood
The final few days of 2025 were relatively uneventful for capital markets. Most asset classes had a pretty good 2025 in the end. After Liberation Day, stocks recovered worldwide, with Wall Street hitting multiple record highs in the following months as the US economy remained resilient. The recent release of the Q3 GDP estimated that the US economy grew at an annualised rate of over 4%. There were decent performances across developed and emerging markets, with the UK’s FTSE 100 outperforming the S&P 500, helped by the strength of the banking sector. Bond investors likewise had a decent year, as inflation rates trended lower in the 2nd half of the year. Except for oil, commodities had a decent year. Gold, in particular, was well sought after. AI-related stocks were once again in demand, though the likes of Nvidia finished the year giving back some of their gains.
So what can investors look forward to this year? Well, if everyone is to be believed, analysts and portfolio managers expect more of the same. Investor sentiment indicators are positive, the most recent Merrill Lynch allocation to cyclical assets, stocks and commodities is highest in 3 years, and equity allocation is highest in a year.
The optimistic view is that Goldilocks is back: inflation trending back to the Central Bank’s target of 2%, global growth remaining resilient if unexciting, and therefore we can expect further easing of monetary policy. AI will continue to help support a new era of economic expansion. The US consumer will continue to spend as they start to reap the benefits of the beautiful bill.
As we all know, things don’t always pan out as expected in capital markets, and at some point during the year, something will upset the apple cart, if only for a brief period. As always, it will come from left field.
There will be a new Chairman of the Fed, yet to be chosen, who will take over in May from Jerome Powell. It would be logical for Powell to want to leave as much flexibility for the new man coming in, who I believe will have a difficult task. He will be under pressure from the administration to ease further, even though inflation may still be above their 2% target, and economic growth may still be positive.
As for the UK, the narrowness of the vote to cut last time would suggest that another cut in February is not assured, despite the weakness of the economy, as the Bank of England continues to focus on wage growth, particularly in the public sector. Stocks around the globe appear to be starting 2026 on a positive note. So goes the first few days, so goes the year, is the adage. We wish everyone a happy and prosperous 2026.