2025 – An unpredictable year

This time last year we said there were a number of uncertainties for 2025 and as we stated then ‘chief among those, is what the Trump administration will do when it takes up office in January’. Trump’s actions so far were hard to predict, and he certainly has created a lot of economic uncertainty and instability with his tariff policies, which always seemed to have moving goalposts! Especially against China where tariffs were at one point 145%! However, after long running negotiations these were drastically reduced. Ironically, China’s exports have surged this year to a record compared to their imports, partly driven by higher exports to non US markets.

Tariffs were seen as inflationary, and especially if a global trade war was ignited. Although there were fears that this would happen, and indeed earlier in the year it looked very likely at times, this has fortunately been avoided, so far. With many Trade Agreements now in place, a full blown global trade war appears far less likely. Even so, US tariffs are substantially higher than previously and there does seem to have been an effect on inflation, especially in the US, UK and Japan. After inflation gradually fell over the course of 2024 and continued to do so going into 2025, it began creeping up gain once the effect of tariffs started feeding through to product prices.

Although inflation has proved ‘sticky’ in 2025, it has not deterred the Bank of England (BOE) and the US Federal Reserve Bank (Fed) from cutting interest rates. Due to the ‘lag effect’ of cutting rates, Central Banks have to act well in advance to try and head off economic slowdowns. The general outlook for economic growth is lower due to the effect of US tariffs. Despite UK inflation being way above the 2% target and currently sitting at 3.6% (CPI), the BOE has cut rates three time this year, down to 4%. At the time of writing, they were expected to cut again by another 0.25% this month, down to 3.75%. While the Fed in the US has also cut rates three times this year, down to an average of 3.64%.

Investment markets performance – 2025 another good year

Interest rate cuts certainly do appear to have helped support the stock and bond markets this year. Despite a lot of uncertainty, equities have had a good year, particularly in Europe, Japan and Hong Kong. We said this time last year that UK equities were due a rebound and the FTSE 100 has also certainly had a very good year, but this index is more representative of global markets than how the UK is doing. This is due to the fact that around three quarters of FTSE 100 company earnings come from overseas. The FTSE 250 is a far more ‘domestic’ facing index and this has not done so well this year, comparatively. Although, its double digit returns have been surprisingly good, considering the low UK economic growth (GDP) and poor UK sentiment.

The S&P 500 index in the US has been a bit of a global laggard, relatively speaking. Perhaps this is due to investors worrying that the inflationary effects of tariffs will be more of a drag on the US economy than other regions. Markets may not share Trump’s view that his tariffs will ‘make America great again’!

Technology shares have done very well this year (again), driven by a boom in investment into Artificial Intelligence (AI) by the major tech companies. Whether they will see a rise in future profits from their mammoth spending spree, remains to be seen. Whatever the outcome, technology share prices do look ever more stretched.

Bonds have also fared quite well, with some markets returning solid mid to high single digits. Good returns for what are seen a lower risk investments, relative to equities.

Global overview – steady growth, again

Although global growth expectations have been downgraded this year, it is still expected to be around 3.2% for the whole year.

While nothing exceptional, it is a reasonably solid rate of growth. However, this hides large underlying differences, with emerging market and developing economies set to grow by slightly over 4% and advanced economies by just 1.5%, this year.

Stock market returns do not always follow economic growth and as mentioned earlier, global stock markets have had a very good year.

Overall 2025 picture – a year of good investment returns

Generally, 2025 has been a good one for Equity markets, and Bond investments have also had another positive year, helped by falling interest rates and less inflation than last year. A truce in the Middle East, which appears to be largely holding has also helped global sentiment and kept oil prices down.

The ongoing efforts to find a solution to the Ukraine war has also helped keep commodity prices down, which adds stability to markets. While there is no real sign of a resolution yet, just the fact that both sides are talking about an end to the war gives hope to markets.

Strong UK stock market returns have helped the Rosemount Tactical Portfolios to another good year so far, with returns ranging from around 6% for the Tactical Cautious portfolio to over 14% for the Tactical Adventurous portfolio.

Outlook for 2026

As ever, making predictions about the future is not an exact science. Looking at next year there are a number of uncertainties, albeit different ones to this year.

Unlike this time last year, we now know what Trump’s policies are and the markets have got used to his contradictory announcements. They are more prepared to wait and see what actually happens, rather than react extremely to his off the cuff statements.

Therefore, the main uncertainties appear to be the more traditional ones. Namely, the trajectory of economic growth and interest rates, particularly in the US, as this has a knock on effect to global sentiment.

The US economy has been slowing down, under the weight of import tariffs and the longest US Government shutdown in history. However US GDP growth is still expected to be around 3% for all of 2025 and slightly more than that for 2026. Moderating inflation and the expectation of further cuts to interest rates are expected to add support to the economy next year. Global growth is also expected to be over 3% next year.

We still do not know what the outcome of the Ukraine peace negotiations will be, and there is always the chance of further escalations. However, barring any major shocks the outlook for next year does look supportive to equities.

Yes, on the surface equity valuations do look high, particularly in the US. However, this is largely driven by small parts of the markets and technology values in particular. There are still many good value portions of the equity markets.

Economic growth is expected to be reasonable, and Inflation and interest rates are expected to reduce further in 2026 . This combination has historically been a supportive backdrop for investment markets. In particular, lower interest rates do encourage money to move from cash to investments, in search of higher returns.

Sources: Reuters, BBC, International Monetary Fund (IMF), Office for National Statistics (ONS), Federal Reserve Bank of New York, Charles Stanley, Morgan Stanley, Schroders, FE Analytics.

Past Performance is no guarantee of, or guide to future returns.
The value of investments and the income from them can fall as well as rise and you may not get back the original amount you invested.
The comments made in this review represent our current investment views and are in no way a guarantee of future performance.