Market Overview

Summary of world markets in December

Global equities made further gains in December to round off a rewarding – if nerve-wracking at times – year for equity investors. The US market was a laggard during the month, while UK, European, Asian and emerging market indices fared well. Broadly positive returns were also recorded by bond investors, with gilt yields fairly steady and corporate bond spreads remaining tight. The gold price added further to this year’s sparkling performance, and silver and platinum prices surged thanks to increasing investor attention.

A broadly positive December topped a strong year for global equities despite a turbulent geo-political backdrop and frequent bouts of market volatility, with global equity indices posting (US dollar-based) returns of around 20%. Given the strength of UK sterling versus the US dollar over the year, the performance of global equities in sterling terms was less glamorous (around 13%) but rewarding, nonetheless. Indeed, sterling-based investors were well-served by staying in their home market in 2025 given the currency’s strength as well as outperformance from the main UK index.

December was a choppy month for US equities which saw the market struggle to gain ground.  The AI theme remained front and centre, but there were mixed fortunes at the individual company level given the enormous costs of developing the technology and questions about the nature of the end products and the scope to extract profits in the future. A plunge in Oracle’s share price due to a revenue disappointment reinforced this nervousness. This saw a rotation away from the expensive technology stocks and into cyclical and cheaper sectors, a move that was further encouraged by an interest rate cut. While it was a good year for US equities in absolute terms, the market underperformed many others; a weaker US dollar worsened the outcome for non-US dollar-based investors. Large caps were more rewarding than mid and small caps, and style-wise, growth fared better than value, although notably, not by a large margin.  In part, this stemmed from investors’ increasingly discerning approach regarding the perceived AI winners and losers, as well as a strong return from the banking sector. Leading on from this, growth was not the tailwind that it has been in recent years.  Indeed, some of the deeper value and income strategies in the peer group fared relatively well. All in all, however, it was another challenging year for actively managed US equity funds versus the main index.

Despite the UK’s economic and fiscal challenges, it was a banner year for the equity market, led by the blue-chip index. Mid and small-cap indices delivered creditable returns but lagged large-cap equities by a decent margin. Against the backdrop of price rises, the precious metals and mining sector delivered extraordinary returns over the year; in December alone, the sector chalked up a performance of almost 20%. With the copper price on the rise, basic materials companies were also strong over the month. Banks and financials, together with aerospace and defence stocks, also maintained their positive momentum during December, with these sectors achieving stellar returns over 2025. By contrast, oil & gas stocks languished against the backdrop of a weakening oil price, while some of the sectors seen as challenged, or ex-growth, such as media and consumer companies, continued to be out of favour. Style-wise, with value outperforming growth in most markets (ex the US), the value-skewed UK market enjoyed the benefits. Consequently, UK equity funds that have overt value credentials tended to fare relatively well, whereas it was a tough year for growth-biased approaches.

It was also a good year for European equity indices, where, as in the UK, banks and financials led the way. This theme persisted in December, with these sectors once again in poll positions, alongside metals and mining stocks, which continued to benefit from strong commodity prices.  Defence was also a major theme, with the promise of spending increases turbo-charging the stock prices of companies in this arena, notwithstanding some year-end profit taking. Stylistically, value indices outperformed growth indices, again, a theme that characterised the year. Indeed, in 2025, the gap between the two styles was wide and this was mirrored in the returns of European equity funds, where growth managers lagged value managers by a significant margin.

A positive December for Japanese equities added to a strong year for the market in local currency terms. Yen weakness dampened the returns on offer in sterling terms, but even taking this into account, Japan was still a relatively rewarding market. Japanese equities made steady progress after the Liberation Day shock as global trade tensions eased. Politically and economically, investors had plenty to digest in December, with newly elected Prime Minister Takaichi seeking to stimulate the economy and the Bank of Japan raising interest rates, putting pressure upon the government bond market. This backdrop benefited banks and financials, as well as cyclicals. There was volatility amongst AI-related names, with Softbank plunging in response to Oracle’s revenue miss (with both involved in the Stargate project to develop AI data centres in the US). For the year as a whole, as in other markets, value managers were firmly in the vanguard.

Asian and emerging market indices enjoyed a strong finish to the year, outperforming global equity indices. Gains were led by Korea, Taiwan and some of the smaller markets.  Korea chalked up an impressive double-digit return for the month, while the calendar year return was close to +100%, with the market boosted by technology heavyweights and, more generally, strong earnings growth and prospects for further improvements to corporate governance. TSMC was the major contributor to the strong monthly and annual return from Taiwan.  Meanwhile, Chinese equities lost some ground over the month, as did Indian equities. While China’s exports have improved amid the government’s efforts to diversify shipments to non-US markets, the domestic Chinese economy continues to languish, as reflected in recent data that showed weak investment and disappointing retail sales. India was disappointing over the year and lagged its peers. The market had become extremely expensive (even compared to its own richly valued history), levels that could not be sustained in the face of downgrades to earnings growth.

There was upward pressure on global sovereign bonds during December. German 10-year yields approach multi-year highs, while Japan’s 10-year yield breached 2% for the first time since 1999 as Prime Minister Takaichi reiterated her plans for fiscal spending and the Bank of Japan raised the short-term interest rate by 0.25%. As expected, the Federal Reserve cut the federal funds rate by 0.25% at its December meeting, bringing borrowing costs to their lowest levels since 2022 (a range of 3.50-3.75%). Policymakers projected just one further 0.25% cut in 2026, with some still concerned about the inflation picture. This “hawkish cut” tempered sentiment towards US treasuries. The Bank of England cut the base rate by 0.25% (to 3.75%), but the committee struck a cautious tone with regard to further easing. Against this backdrop, UK gilts fared relatively well, delivering a modest positive return against the backdrop of a lacklustre growth picture and cooler than expected inflation data. Despite a noisy year for the gilt market, the market posted a decent total return of 5%.

Corporate bonds were steady and also delivered a modest positive outcome over the month.  Over the course of the year, corporate bond spreads became tight in most areas of the credit quality curve, but with credit fundamentals in good shape and demand for the asset class buoyant, fund managers acknowledge that spreads could well remain within current ranges.  Investors enjoyed a fruitful year in both investment grade and high yield bonds, with returns typically in the upper single-digit territory.

It was a banner year for precious metals, with the gold price rising by 65% and silver by 127%.  This was their strongest year since 1979, when oil prices surged after the Iranian Revolution. In December, the silver price spiked by over 25% thanks to surging investor demand, which removed large quantities of physical silver from circulation. Copper also found strong support, with the price rising by almost 10%. By comparison, the increase in the gold price was relatively pedestrian, but gold bugs had little reason to complain after a sparkling year for the precious metal. Hopes of easier monetary policy in the US boosted the bull case for precious metals, as did growing tensions between the US and Venezuela.

The oil price fell again in December, rounding off a negative year for the commodity (Brent crude registered a calendar year decline of over 18%). The price was buffeted by stuttering efforts to reach a peace agreement between Russia and Ukraine, as well as mounting tensions in Venezuela, but overall, concerns about oil demand and potential oversupply continued to be the dominant influence upon the oil price.