Investment Commentary - December 2025

December capped off a strong end to the year for financial markets, as risk assets extended the rally that had characterised much of the second half of 2025. Investor sentiment remained supported by the view that inflation was continuing to moderate across major economies, allowing central banks greater flexibility to ease policy should growth slow further. While trading volumes were lighter into year-end, markets were generally constructive, with global equities posting modest gains, credit remaining resilient and government bonds broadly stable.

 

In the US, equity markets finished the year quietly but on a firm footing. The S&P 500 rose by +0.1% in December, while the NASDAQ edged lower by -0.5%, reflecting some year-end profit taking in technology-heavy names. Communication services and technology stocks again outperformed the broader market over the year, but December itself highlighted growing differentiation beneath the surface as elevated valuations and a more uncertain growth outlook encouraged a more selective approach. Consumer-facing sectors lagged, with softer labour market data and cautious corporate guidance weighing on expectations for demand growth into 2026.

 

US government bonds were mixed over the month. Treasury yields moved modestly higher in early December before stabilising, and US Treasuries delivered a small negative total return of around -0.5% for the month. Even so, the broader backdrop remained supportive, with investors increasingly confident that policy easing would continue into 2026 if labour market conditions softened further. This helped keep financial conditions relatively benign and supported risk sentiment into year-end.

 

European markets also closed the year positively, although performance varied by region and sector. In December, European equities continued to advance, with the STOXX Europe 600 rising by approximately +2.8%, supported by improving growth expectations and optimism around fiscal support. Political uncertainty in several countries remained a background risk, but markets largely looked through these developments.

 

UK markets were relatively calm in December. UK equities delivered modest gains, with the FTSE 100 rising by around +2.3%, supported by strength in financials and other defensive sectors. Gilt markets were stable, with UK government bonds posting a small positive return of approximately +0.3% over the month as investors continued to weigh easing inflation pressures against fiscal uncertainty. Domestically focused sectors remained sensitive to the outlook for consumer spending, but year-end positioning was generally constructive.

 

Emerging market assets extended their strong run into December. Emerging market equities rose by +3.0% in US dollar terms, supported by improving global liquidity conditions and continued enthusiasm for Asia’s role in the global technology supply chain. Latin American markets also performed well, aided by currency strength and supportive domestic fundamentals. Emerging market debt delivered positive returns, with hard currency EM bonds rising by around +1.7%, reflecting attractive yields, contained default risks and favourable currency dynamics against a weakening US dollar.

 

Commodity markets were mixed during the month. Precious metals continued to perform strongly, with gold rising by +1.9% and silver surging by +26.8%, supported by falling real yields, ongoing central bank demand and geopolitical uncertainty. By contrast, energy prices weakened, with Brent crude falling by -3.7% and WTI down -1.9%, as ample supply and subdued demand expectations weighed on sentiment.

 

Currency markets were once again an important driver of returns. The US dollar weakened further in December, with the dollar index falling by -1.1%, reflecting narrowing growth differentials and expectations of further Federal Reserve rate cuts in 2026. Euro and sterling benefited from this move, rising by +1.3% and +1.8% respectively against the dollar over the month. In contrast, the Japanese yen remained under pressure as yield differentials persisted and the Bank of Japan continued its cautious policy normalisation, contributing to underperformance in Japanese assets for unhedged investors.

 

Looking at the year as a whole, 2025 was a highly constructive period for investors, despite significant volatility and shifting macro narratives. Risk-on sentiment ultimately prevailed, and 2025 became the first year since the pandemic in which all major asset classes delivered positive returns.

 

Equities delivered robust gains across regions. Developed market equities rose by around +22%, while emerging market equities were the standout performers, returning approximately +34% in US dollar terms, their strongest year since 2017. US equities rose by +17.9%, lagging other major regions, while European equities delivered strong returns once currency effects were taken into account. Japanese equities also performed well, with the Nikkei up +28.6% in local currency terms, supported by reflation expectations and fiscal stimulus.

 

Fixed income also had a strong year. Global aggregate bond indices returned around +8%, their best performance since 2020, helped by falling yields in the US and a weaker dollar. US Treasuries returned +6.2%, while UK Gilts rose by +5.0% as high starting yields and rate cuts supported returns. Performance diverged sharply across regions, however, with Japanese and German government bonds posting negative returns amid rising yields and fiscal concerns.

 

Commodities were led by an exceptional rally in precious metals. Gold rose by approximately +65% over the year, while silver surged by +148%, their strongest annual gains since 1979, driven by lower interest rates, geopolitical risks and central bank reserve diversification. Broader commodity returns were more modest, as sharp declines in oil prices offset gains elsewhere.

 

Within currencies, the US dollar index fell by -9.4%, its weakest annual performance since 2017. The euro rose by +13.4% against the dollar, while sterling gained +7.7%

 

Overall, 2025 served as a reminder of the benefits of diversification across regions, asset classes and currencies, particularly after a prolonged period of US-centric returns, as market leadership broadened meaningfully beyond US technology and the US dollar.