Reflection of 2025 and Outlook for 2026: Markets at an Inflection Point

The year 2025 proved to be a time of economic divergence rather than widespread stagnation, as global growth slowed in parts of the developed world but stayed resilient in the United States. While several advanced economies experienced weak momentum amid declining fiscal stimulus and policy uncertainty, the US economy grew strongly, expanding by 4.3% in Q3 2025 and 3.8% in Q2, fueled by robust consumer spending, especially in healthcare, recreation, travel, and non-durable goods, along with increased government spending and steady exports, even despite a government shutdown. Inflation slowed across regions but remained persistently high in services and wage-sensitive sectors. Notably, monetary policy in most developed markets shifted toward easing in 2025, although financial conditions remained uneven due to policy shifts, geopolitical issues, and tariff sensitivities. Equity markets reflected this uneven macro landscape.

Headline returns were positive, but gains were heavily concentrated in mega-cap technology and AI-linked stocks, while market breadth remained narrow and volatility episodic. Commodities and select real assets regained relevance as portfolio stabilizers amid geopolitical tensions, tariffs, and ongoing supply-chain reconfiguration. Overall, 2025 underscored a regime characterized by policy driven dispersion, asset concentration, and uneven growth, rather than systemic economic stress. Looking ahead to 2026, the global economy enters a more balanced but fragile expansionary phase. Continued monetary easing should provide incremental support to growth, though real rates are likely to remain positive. Policy choices will be pivotal: deregulation across financials, energy, and healthcare could unlock investment. Valuation sensitivity, particularly in US equities, remains elevated, reinforcing the need for diversification beyond traditional stock-bond frameworks.