Market summary – Review of Q4 2025

US equities were up 2.5% despite the ongoing political uncertainty, the longest government shutdown on record, and rising job losses. Technology and communication services again led the market, although performance among the Magnificent Seven was mixed and there were signs of a broadening of market leadership. There are also continued concerns around the high valuations of artificial intelligence (AI) tech stocks, and whether we are in an ‘AI bubble’.

European equities continued their positive performance in 2025 returning 6.1% over the quarter. Investor sentiment was helped by easing global financial conditions, stable inflation, and resilient labour markets. Financials performed particularly well, while the more defensive areas of the market, such as healthcare and utilities, also saw good returns. However, weakness in Germany’s manufacturing sector weighed on export‑focused industries.

UK equities ended 2025 strongly and returned 6.5% in the fourth quarter. Markets were supported by mining, financials, and defence stocks. Overall, internationally focused companies with global revenue streams and the attractiveness of stocks that pay a consistent dividend underpinned strong performance. Elsewhere, domestically‑focused sectors lagged as consumer spending remained under pressure ahead of the November Budget and cost challenges persisted.

Emerging markets outperformed global equities during the quarter returning 4.9%. This was helped by strong returns from technology‑driven markets such as Taiwan and Korea. Elsewhere, Chile, South Africa, Brazil, and Mexico posted solid returns along with the Southeast Asian markets of Indonesia, Malaysia, and the Philippines. China was down 7.3% as continued challenges in property and weak consumer demand weighed on sentiment.

Government bond performance diverged sharply across markets in the fourth quarter. UK gilts outperformed, up by 3.2%, after a market‑pleasing Budget and a December rate cut from the Bank of England (BoE). US Treasuries were more mixed, with rate cuts supporting shorter‑dated yields while longer maturities rose. Japan saw a significant sell‑off as a large fiscal stimulus package and a rate hike pushed yields to multi‑decade highs.