2025 was a year that started with some optimism tinged with fears of geopolitical tensions, particularly nervousness about the soon to be inaugurated US president. Much of what drove markets in 2024, continued into this year.
A seminal moment occurred in April when we witnessed the drama of Liberation Day. Who can forget the cardboard list of countries and tariffs. Will we ever forget the trade war against the penguin-populated Heard and MacDonald Islands? The market response was instant and panicked – equity markets sold off sharply and the dollar plummeted. As trade deals emerged and fears of trade wars eased, markets rebounded. We began to hear of the “TACO trade” – a sense that the US administration would not follow through on threats of sanctions. The S&P 500 took 89 days to recover to its record high, scoring its quickest-ever comeback into record territory following a drop of 15% or more, All told, the index was down 18.9% from its February record when it reached its closing low for the year on April 8. We did see bouts of nervousness around trade deals as the year progressed, but the overall sense was that the outcome would not be as bad as originally anticipated. Becalmed investors returned to buying on the basis that the worst was over.
Inflation finally showed signs of coming under control, allowing central bankers to reverse interest rate increases. By the summer, the ECB had delivered 8 rate cuts in a year. The US had 3 cuts of 0.25% last year. The head of their central bank Jerome (“Jay”) Powell came under huge pressure from the White House to accelerate the pace of cuts – President Trump suggesting a 1% rate rather than a 3.5% one. Powell’s tenure will come to an end in the coming months, and we will watch with interest who the president will appoint to take over in the hot seat. Japan, on the other hand, went the other direction and bookended the year with rate rises, reaching their highest level since 1995 (still only 0.75%) as signs of economic growth and inflation emerged.
At times it felt like every time a company made a reference to AI, it guaranteed a spike in its share price. While Nvidia was the darling of the market for much of the year, it did have some setbacks, such as when Deepseek announced new technology to compete on a significantly lower cost basis. You might have expected that Nvidia would repeat its stunning returns in share price again this year but it was Alphabet (Google) that topped the Mag 7 and only Tesla joined both firms to beat the S&P 500 over the year.
Investors became concerned that AI-related stocks had become “priced for perfection” and any disappointment with results or outlook resulted in sharp selloffs. Markets were also concerned with the levels of debt-funded capital expenditure on unproven technology.
The chart below shows a breakdown of performance by industry in the US in 2025. Telecoms, technology hardware and semiconductors are all closely associated with the AI boom. However, you can see that it was by no means the strongest performing theme, with defense and metals & mining leading the way.
We saw increased demand for non-US assets during the year as investors looked for better value. Very healthy returns in US stock markets were outshone by even better gains from Chinese, European, UK and Japanese shares (in local currency terms).
A weaker dollar and compelling valuations attracted more investment in Europe in particular but also to emerging markets.
The US dollar had a terrible start to 2025. Worries emerged about its global leadership as the reserve currency. Trade Wars unnerved currency markets. Furthermore, investors worried about a huge increase in US government borrowing to fund the One Big Beautiful Bill, widening trade deficits and outflows from US equities, with preference switching to EM and EU ones. The phrase “US Exceptionalism” devalued as quickly as the currency. The dollar was not helped by US president threats to fire the Chair of the Federal Reserve.
We focus on the dollar as US equities make up about 70% of World stock markets (as measured by the MSCI World Index). While EU investors saw strong stock market growth, when we translate them to euro, the weak dollar meant that those gains were muted.
Gold shone brightly in 2025, but it was not the only one – silver, platinum and copper also saw strong price appreciation but with considerable volatility. Gold benefited from central bank demand and concerns about the US debt mountain. The other metals were boosted by industrial demand and long-term underinvestment in production as well as supply disruption in key producing countries. Inevitably, a speculative element becomes part of the equation.
With geopolitical tensions in many parts of the world, you might have expected to see oil prices rise. On the contrary, supply increases from OPEC+ and peace talks ongoing in the Russia Ukraine conflict underpinned a steady slide in oil prices throughout the year.
Bonds delivered a more modest return than equities. Risk was rewarded in the corporate bond market and high yield stocks. We saw mixed performance among EU govt bonds, Spain and Italy doing well but French instability with multiple governments meant that their bonds suffered. US corporate bonds fared much better but currency weakness dampened returns.
Overall, investors who stayed the course through the turbulence around Liberation Day were very well rewarded. We did see some rotation into sectors other than just mega cap US stocks, resulting in a broader uptick than we have experienced for some time.
Global growth is likely to be slower than previous years. Trade wars and geopolitical conflicts remain. It is times like this that diversification is essential and likely to be rewarded.
This publication was prepared by Bernard Walsh, Head of Investments & Pensions for Fairstone Asset Management DAC trading as Fairstone & askpaul.
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Information as of the date of publication 09/01/2026
