Welcome to our first quarterly Markets & Economic Summary of 2026 in which we look back on the performance of markets and economies around the world during 2025 and look forward to what we can expect in 2026. We cannot, of course, predict the future and no doubt the next 12 months will throw up unexpected events and challenges in the world of investing. We will, as always, try to keep ahead of events in order to maximise investment growth in your portfolios.
Markets
The last quarter of 2025 saw steady stock market growth continue in most global markets, although at a lower pace than the previous 6 months when returns had been driven by the recovery in share prices from the slump that occurred in April when President Trump first announced his range of trade tariffs. This resilience was in spite of policy and geo political uncertainties, such as US-China trade tensions, tariff regimes, a much talked about “AI bubble” and evolving central bank/government tax and monetary policies. Global markets managed to shrug off these downside risks and finished the year near, or at, record levels, such as the FTSE 100 index closing at 9,931 on 31st December 2025.
Whilst it still registered double-digit growth in US Dollar terms in 2025 for the third consecutive year, the S&P500 (one of the main US Indices) was not the best-performing market during the year, with non-US equities significantly outperforming. In addition, the returns for a UK investor on US stocks were reduced by the weaker US dollar, with the £ appreciating against it by 7.65%. More than half of US growth was attributable to AI-related stocks, elsewhere it was more widely based and not as dependent on technology, except perhaps in Asia. In Europe, it was driven by banks (Eurozone banks increased in value by over 50% in 2025), defence stocks and utilities; the FTSE100 was driven by mining, defence and banks; in Japan, the drivers were Real Estate and Energy.
The best performing market in 2025 was South Korea, which rose by over 90%, Latin America also grew by 44%. In £ sterling terms, the FTSE All-Share was up by 24%, MSCI Europe ex-UK by 26.2%, MSCI Japan by 16.3%, MSCI Emerging Markets by 24.3%. Overall, the MSCI World ex-USA index rose by 22.7%, but the MSCI World including the USA by only 12.7%.
Stock Markets weren’t the only bright investment spot during 2025. Gold was a standout asset, rising 53% in £ sterling terms, its strongest performance since 1979. This was driven by Central Bank demand, geopolitical risk and US Dollar weakness. Other precious metals also enjoyed a remarkable 2025, Silver gained 130%, Platinum rose 112% and Copper 34%. Infrastructure also gained over 17%. However, there were weak spots with Property remaining fairly static, Bitcoin falling by 12.9% and oil by 25.5%.
Economics
In the United States strong corporate balance sheets, company earnings increasing ahead of expectations and risk appetite, predominantly in the Artificial Intelligence (AI) sector, were the main driving factors behind strong market performance. The US Government shutdown which lasted for 43 days from 1st October deprived the US Federal Reserve of a lot of the data it needed to make interest rate decisions. Nevertheless, it cut interest rates for the third time in December to 3.5% – 3.75%, but indicated that there may be a delay in any further cuts as it tries to balance keeping a lid on inflation and maintain a buoyant jobs market. It is expected that US Gross Domestic Product Growth for 2025 will be around 2% (2024 – 2.8%) despite a strong performance in the 3rd Quarter.
In the UK, the Autumn Budget at the end of November had been widely trailed for several months in advance with the Government and HM Treasury floating a number of ideas in the media as to how they might increase taxes to pay for increased spending and to fill a gap in the public finances. This speculation created a great deal of economic uncertainty for both employers and the general public which led to companies delaying investment and the public cutting back on expenditure, fearing higher taxes. This will likely have an impact on economic growth and thus affect the Bank of England’s (BoE) ability to fully control interest rates to ease inflation. The UK economy is strained, cost of living pressures are still there and business confidence remains weak, leading to lower growth compared to other G7 countries. In December, the BoE cut interest rates to 3.75%, the lowest level since February 2023.
Eurozone activity late in 2025 displayed mixed signals, with some service sectors remaining resilient, but manufacturing industries in core economies such as Germany continue to struggle. In Europe, inflation is relatively under control and back at the target level of 2%. The European Central Bank (ECB) cut its interest rate to 2.15% in June. Europe has also injected a lot of fiscal stimulus into its economies, particularly the defence sector, where the new target is to make defence spending 5% of GDP to match the US. They are also injecting more than €71bn into Infrastructure.
The broader Asian financial markets, however, performed well, with technology-linked stocks and export-driven sectors in South Korea and Taiwan finishing the year strongly. Global trade has been surprisingly resilient in the light of the Trump trade tariffs with China re-directing production to other markets, meaning that their export volumes have risen over the course of 202,5 although there were signs of momentum slowing towards the end of the year. China is also using monetary policy and fiscal stimulus to support infrastructure investment and domestic consumer demand.
Over the last twelve months, Japan has implemented new corporate governance policies with the aim of stimulating investment in companies. The new Prime Minister, installed in October, is focused on aggressive fiscal spending to stimulate growth and boost incomes and investment. This should hopefully lead to increased investment returns.
Outlook for 2026
Looking ahead into 2026, the global investment landscape is set to be shaped by a powerful mix of higher government spending and continued central bank rate cutting, which should support financial markets. After a period of uncertainty driven by shifting political priorities in developed economies, the outlook for the year ahead currently appears slightly more benign.
Inflation is less of a concern for central banks, only around one or two interest rate cuts expected from the US Federal Reserve and probably not until the second half of the year. However, this will depend to some extent on who Trump chooses to replace Jerome Powell as head of the Fed. There are also expected to be a couple of cuts by the Bank of England, and the European Central Bank potentially cutting further from already low levels. This backdrop should help underpin risk assets such as equities.
In the US, technology company earnings are expected to keep growing at a healthy, if slightly slower, pace as demand for artificial intelligence (AI) and its cost-saving potential remains strong. However, valuations are still high, reflecting elevated investor expectations, and the increasing web of circular deals is tying the fortunes of the world’s largest companies ever closer together.
While today’s tech stocks are better supported by profitability and strong balance sheets than during the dot.com bubble, the sustainability of profit growth remains uncertain. Investors should be mindful of concentration risks, as tech and communication services now make up over a third of global equity indices.
Outside the tech sector, US equities are seeing more mixed trends. Parts of the economy exposed to lower-income consumers are struggling, and while a January tax rebate will help, more job creation and lower interest rates would have a greater impact. Tariffs are also affecting some firms, with the full impact yet to be seen, making selectivity essential.
European equities are set to deliver positive returns in 2026, supported by higher government spending, especially in Germany, and greater corporate certainty following recent trade negotiations. Company earnings forecasts are improving, and sectors like defence, and infrastructure should benefit from increased spending and stable energy prices, which are expected to remain low due to additional supply and storage.
Closer to home, UK businesses have faced challenges in 2025, from US tariff announcements to higher costs from the 2024 budget. The economy slowed to just 0.1% growth in the third quarter of 2025 and is expected to be flat or even shrink slightly in the fourth quarter. Growth in 2026 is expected to be similar to 2025, around 1.5%, with inflation gradually falling to about 2.5%, allowing for a couple more rate cuts.
However, despite consumers and businesses now more aware of what lies ahead in terms of taxation, a significant pick-up in spending remains unlikely. This will remain a headwind for domestically focused stocks, but earnings growth should acceleratehelped by ongoing company share buybacks, stabilising energy costs, and falling interest rates. The large share of overseas revenues for major UK companies means currency movements will continue to influence reported profits.
In Asia, Chinese tech companies and exporters are well positioned for further gains, supported by state backing, early adoption of robotics and automation, and rapid AI uptake. While domestic demand in China remains subdued, exports are growing at a healthy pace, with the government continuing to promote manufacturing-led growth.
Japanese equities also look attractive, with corporate reform and strong earnings momentum driving potential gains, though currency risk and geopolitical tensions remain factors to watch.
Turning to fixed income, markets will be shaped by the balance between inflation risksand central bank policy. If inflation stays subdued, further rate cuts should support bondreturns. However, investors must remain alert: a resurgence of inflation, perhaps fromoverly aggressive Fed rate cuts, could push yields higher and hurt rate-sensitive sectors.
For 2026, financial market returns are likely to be well supported but risks remain. A new Fed chair could change the central bank’s approach, market concentration is rising, and the possibility of an asset bubble is increasing. This underlines the importance of discipline – investing based on fundamentals, not hype.
As always, a well-diversified portfolio remains the best defence against uncertainty, helping investors capture upside potential while protecting against inflation, inevitable market corrections, and shifting global sentiment.
If you want to discuss any of the points raised in this article or want further assistance, please contact your usual Fogwill & Jones adviser who will be happy to help you.
Investment Reviews
Whilst we monitor all investments that our clients hold in order to pick up any unusual events or something that requires immediate action, we carry out a full in-depth analysis of the funds and Model Portfolio Services (MPS) that we recommend every six months at the following times:
- Single Multi-Asset Funds: January & July
- Managed Portfolio Services: February & August
- Fogwill & Jones Advisory Models: March & September
We will contact you after we have undertaken these reviews with any changes that we are recommending as a result.
Wishing you all the best for 2026.
Simon Briggs
Chartered Financial Planner, Director & Compliance Manager
Liam Burnett
Investment Analyst