Key Points
Global economic growth was likely close to trend levels in 2025
- Despite the re-emergence of US-led trade disputes, in addition to a degree of labor market softness in certain markets, global growth exhibited resilience in delivering a near-trend level expansion of 3%.
- The continued moderation of inflation enabled central banks worldwide to maintain a cycle of interest rate cuts, while in the US, robust investment in AI-related infrastructure provided an additional boost to economic activity.
The dollar experienced its worst performance since 2017 as geopolitics and rates were headwinds
- The re-emergence of geopolitical uncertainty, centered on the US and its trade policy, saw foreign investors de-risk their holdings of US assets by hedging some of their US dollar exposure.
- Later in the year, further rate cuts by the Federal Reserve, in addition to some weaker labor market data, saw interest-rate differentials compress and become a headwind for the dollar.
Global equities delivered another year of strong gains while the locus of outperformance shifted
- Both emerging markets (33.6%) and developed markets ex US (31.9%) bested the still-strong 17.9% return of the US market. This was aided by a relatively greater degree of multiple expansion, while the decline in the dollar also flattered common currency returns.
- Nonetheless, the US market continued to eclipse its peers in its ability to deliver EPS growth, helped by the strong performance of the hyperscalers.
Bond market returns improved with carry aided by some decline in both risk-free rates and credit spreads
- The continued decline in inflation allowed for an incremental increase in the total amount of easing expected from the Fed. Along with trade war fears and some labor market softness, this helped to deliver a decline in Treasury yields.
- Some further modest declines in credit spreads sees them sitting toward historically tight levels.
Commodities posted strong, in some cases spectacular, gains
- Gold surged through 2025 as continued reserve diversification and increasing retail participation boosted performance. However, silver’s 141% rise was roughly double that of gold, supported by its utility in various electricity-related applications.
- Indeed, rising industrial demand, against a backdrop of constrained supply, also drove several base metal prices higher.
- Nonetheless, oil prices declined as OPEC+ reversed some of their prior voluntary output cuts.