Global equities (+3.7%) advanced in the fourth quarter, marking a third consecutive quarterly gain and closing 2025 on a positive note despite intermittent volatility. Markets were driven higher by robust AI infrastructure spending, strong corporate earnings, and a liquidity boost from the US Federal Reserve (Fed). US inflation remained contained, enabling decisive policy action in response to a softening labor market. The Fed cut interest rates twice during the quarter, ended quantitative tightening, and launched new Reserve Management Purchases (RMP) to bolster liquidity. Amid a relatively positive economic backdrop, the European Central Bank (ECB) left interest rates unchanged, while easing UK inflation led the Bank of England (BOE) to lower rates in December. In Japan, Sanae Takaichi was elected prime minister as the Liberal Democratic Party (LDP) formed a minority coalition with the Japan Innovation Party. Markets rallied on Prime Minister Takaichi’s economic security agenda, boosting nuclear, defense, and tech stocks, while Japanese government bond yields climbed on expectations of a more expansionary fiscal agenda to bolster economic growth. The Bank of Japan (BOJ) raised its policy rate by 25 basis points (bps) to 0.75%, signaling further hikes in 2026 to support the currency as the economy transitions through the impacts of tariffs. Positive trade developments supported markets and aided the global economy, with the US statutory tariff rate declining to 15.7% by year end from a daunting 30% peak in April, after US President Donald Trump and Chinese President Xi Jinping agreed to a series of measures to deescalate the trade war. Gold surged to record highs above US$4,000/oz, while bitcoin slid more than 25% from its peak. 

Global fixed income markets delivered positive total returns in the fourth quarter, as policy uncertainty, fiscal developments, and divergent central bank actions shaped the investment landscape. Commodities ended higher, as industrial and precious metals contributed to performance, while energy and agriculture & livestock detracted.

Equities

United States
US equities (+2.7%) advanced in the fourth quarter, registering a sizable 17.9% return for 2025. Markets were bolstered by robust corporate earnings, resilient consumer spending, and solid economic growth, although anxiety about lofty valuations in the technology sector and concerns surrounding massive AI spending drove capital toward value/cyclical areas of the market. The cooling labor market and worries about upside inflation risks also kept the markets on edge. In the third quarter, the US economy grew at the fastest pace in two years; GDP surged 4.3% annually, primarily fueled by robust consumer spending but also aided by a rebound in exports, business investment on equipment and AI, and increased government spending on defense. The Fed reduced interest rates by 50 bps during the quarter. Policymakers were divided on their outlook for interest rates amid considerable uncertainty about inflation and the labor market, with the Fed’s median dot plot projection showing only one potential rate cut in 2026. In November, the Consumer Price Index rose at its slowest pace since early 2001, although the encouraging result was likely skewed by disruptions in data collection due to the government shutdown. According to FactSet, the year-over-year earnings growth rate for the S&P 500 Index was 13.6% in the third quarter, well above the 7.9% estimate on September 30 and the 10-year average of 9.5%.

Economic data released during the quarter signaled a healthy economy, although the government shutdown suspended or delayed the release of numerous key economic indicators on the labor market, consumer spending, and inflation. The labor market continued to cool during the quarter; nonfarm payrolls increased by a modest 64,000 in November after October’s decline of 105,000 was driven by a sizable 162,000 drop in government employees. Notably, Fed Chair Jerome Powell indicated that job gains may have been systematically overstated by 60,000 per month since April. Unemployment rose to a four-year high of 4.6% in November, from 4.4% in September, but initial and continuing jobless claims suggested that hiring and firing remained relatively low. Solid consumer spending continued to propel the economy, although the spending gap between high- and low-income households widened. The Conference Board’s Consumer Confidence Index slumped from 94.2 in September to 89.1 in December — the lowest since April — on more pessimistic views of the labor market and business conditions and anxiety about high prices. Lower mortgage rates, softening home prices, and a larger inventory of homes for sale boosted pending and existing-home sales during the quarter. Services sector activity expanded at the fastest pace in nine months, with the ISM Services Index registering 52.6 in November.

Within the S&P 500 Index (+2.7%), 8 of the 11 sectors posted positive results for the quarter. Health care (+11.7%) was the best-performing sector, led by pharmaceuticals (+23.6%) and biotechnology (+9.4%). Communication services (+7.3%) also delivered a strong performance. By contrast, real estate (-2.9%) was the worst-performing sector followed by utilities (-1.4%) and consumer staples (+0.0%), which also underperformed.

Europe
European equities (+6.2%) rose over quarter. The European Commission upgraded its 2025 eurozone economic growth forecast to 1.3%, from 0.9%, as growth exceeded expectations in the first nine months of the year. The upgrade was supported by a resilient labor market, declining inflation, and favorable financing conditions. Eurozone business activity continued to expand in December but at the slowest pace in three months; the HCOB Flash Eurozone Composite Purchasing Managers’ Index (PMI) eased to 51.9, marking the first full calendar year of expansion since the COVID pandemic. Notably, German output continued to increase, and French business activity came close to stalling. Against a relatively positive economic backdrop, the ECB left interest rates unchanged in December for the fourth consecutive meeting amid resilient economic growth and inflation near the ECB’s target, with markets speculating that the ECB’s rate-cutting cycle has ended. The central banks of Norway and Sweden also kept interest rates unchanged, while the BOE lowered interest rates in December in response to signs of economic stagnation and cooling inflation. Annual eurozone headline inflation was unchanged at 2.1% in November and is forecast to slow to 1.9% in 2026, according to the ECB’s latest projections. EU leaders agreed to lend €90 billion to Ukraine to fund its defense against Russia after a proposal to use frozen Russian assets failed. The US and Ukraine discussed a deal to end the war, but no ceasefire breakthrough was achieved. According to LSEG, third-quarter earnings for companies in the STOXX 600 Index are forecast to increase 7.3% from a year earlier.

Europe’s manufacturing sector contracted mildly during the quarter; the HCOB Eurozone Manufacturing PMI slipped to 48.8 in December as the quickest decline in new orders for almost a year signaled weaker demand for European goods. However, sentiment about the year ahead significantly improved, and companies showed a more favorable outlook for production in 2026 amid optimism that Germany’s economic stimulus program and greater defense spending will revive manufacturing. The HCOB Flash Eurozone Composite PMI for December revealed that services sector activity expanded for the seventh consecutive month, helping to offset a decline in manufacturing. The European Commission’s Economic Sentiment Indicator improved to 97.0 in November, from 95.5 in September, as industry and consumer confidence strengthened.

In Germany (+2.6%), the central bank slightly lowered its 2026 economic growth forecast to 0.6%, while three prominent German economic institutes reported that the economy has stabilized but remains stuck in a low-growth phase. Despite concerns about the country’s fragile economic recovery, Germany’s ZEW Indicator of Economic Sentiment rose sharply to 45.8 in December, well above expectations of 38.5, thanks to greater optimism that the government’s expansive fiscal policy will boost economic momentum. In the UK (+7.1%), Chancellor Rachel Reeves delivered her highly anticipated Autumn Budget with a larger-than-expected fiscal buffer of £22 billion, achieved mainly through tax hikes, to combat strained public finances. The economy unexpectedly contracted by 0.1% in the three months to October. However, the S&P Global Flash UK PMI Composite Output Index indicated that business activity growth accelerated in December, supported by the strongest upturn in new business since October 2024. Encouragingly, annual headline inflation fell more than expected to an eight-month low of 3.2% in November. In France (+3.5%), the 10-year government bond yield rose to nearly a 14-year high in December as the country faced mounting pressure to lower its deficit to under 5% of GDP. Lawmakers were forced to pass emergency legislation to avert a government shutdown after a fractured parliament failed to agree on a 2026 budget over disputes about spending cuts and tax hikes, thwarting Prime Minister Sébastien Lecornu’s efforts to put public finances on a sustainable course.

Pacific Basin
Pacific Basin equities (+6.3%) rose over the quarter. In Japan (+9.6%), Sanae Takaichi was elected as Japan’s first female prime minister after the LDP and the Japan Innovation Party agreed to form a coalition government. The election initially lifted risk sentiment on expectations of more accommodative fiscal and monetary policy to support economic growth, even as inflation pressures, trade vulnerabilities, and debt concerns injected volatility and kept the BOJ cautious. Momentum built in November as fiscal policy pivoted toward greater spending flexibility and multiyear budgeting, and a record ¥21.3 trillion stimulus package was approved to cushion households from the impact of inflation. Takaichi’s focus on economic growth complicated the BOJ’s path toward tighter monetary policy. The economy contracted at a faster pace in the third quarter than initially reported, with GDP shrinking at an annualized 2.3% rate, while inflation remained well above the central bank’s target. Against this backdrop, the BOJ hiked interest rates by 25 bps to a 30-year high. However, BOJ Governor Kazuo Ueda’s cautious guidance on future rate policy disappointed markets after speculation about earlier and more aggressive hikes, pressuring the yen and pushing 10-year government bond yields to their highest level since 1999. Softer-than-expected Tokyo inflation in December bolstered the prospect of a gradual policy-tightening path.

In Australia (-1.6%), the Reserve Bank of Australia (RBA) held rates steady at 3.6% as persistent inflation, tight labor market conditions, solid consumer demand, and a revived housing market left little room for policy easing. The Australian dollar and bond yields climbed after the Consumer Price Index accelerated in October at the fastest pace in seven months and exceeded the consensus forecast, with core inflation increasing at a 3.3% annual rate, above the RBA’s 2% – 3% target range. The central bank’s December meeting delivered no hawkish surprises, but Governor Michele Bullock signaled a potential end to Australia’s easing cycle, warning that inflation risks have shifted to the upside and that policymakers are considering the circumstances under which future rate hikes may be needed. Driven by stronger investment and consumer spending, third-quarter GDP rose at a 0.4% quarterly pace, but below the forecast 0.7%. Solid economic growth was reinforced by a 1.3% surge in household spending in October — the highest since January 2024 — increasing speculation that the RBA’s easing cycle is over. However, an unexpected loss of 21,300 jobs in November, the largest decline in employment since 2016, was concerning and tempered the prospect of an interest-rate hike.

In Singapore (+0.8%), the Monetary Authority of Singapore held its policy rate steady, citing above-forecast economic growth and easing trade uncertainties following recent global trade agreements. Inflation fell in November, with core consumer prices rising 1.2% year over year, undershooting expectations and reinforcing recent signs of moderating inflation. Surprisingly robust annual GDP growth of 4.8% in 2025 was better than forecast, as AI-driven demand for chips and electronics, along with more resilient global growth, offset trade headwinds. Prime Minister Lawrence Wong cautioned that this level of growth will be difficult to sustain amid fractured global trade and rising geopolitical tensions. He pledged an overhaul of the country’s economic strategy, stronger social safety nets, and a focus on jobs, as the economy is projected to slow to 1% – 3% next year.

Emerging markets
Emerging markets (EM) equities (+5.7%) realized good gains in the fourth quarter, led by Latin America, and followed by Asia, and Europe, the Middle East, and Africa (EMEA).

In Latin America (+8.8%), Brazil (+9.8%) surged after the US eliminated its recently imposed 40% tariffs on Brazilian food products. Third-quarter GDP grew only 0.1% compared to the previous quarter, as a lackluster services sector and modest household spending reinforced views that ultra-tight monetary policy is cooling the economy and boosted expectations of policy easing in early 2026. Despite the slowdown, the central bank raised its 2025 economic growth forecast to 2.3%, from 2.0%, and slightly increased its 2026 GDP growth projection to 1.6%, from 1.5%. Annual inflation slipped to a 14-month low of 4.5% in November and within the central bank’s target range, aided by appreciation in the Brazilian real and an increase in low-cost imports from China. In Mexico (+3.5%), lawmakers approved tariffs of up to 50% on China and other countries, effective January 1. The central bank reduced interest rates by 50 bps during the quarter to 7% in December, despite raising its inflation forecast from 3.5% to 3.7% for the first quarter of 2026 after consumer prices climbed more than expected in November. A 0.3% contraction in the third-quarter GDP spurred the central bank to reduce its 2025 economic growth forecast to a paltry 0.3%.

In Asia (+5.8%), China’s (-7.6%) trade surplus topped US$1 trillion for the first time, as exports improved 5.9% year over year in November, even as shipments to the US dropped nearly 29% from a year earlier. Although factory activity expanded at a faster-than-expected pace in December, deterioration in other key economic indicators in November (industrial production, retail sales, fixed-asset investment) signaled that the economy is struggling. Persistently soft domestic demand heaped pressure on the government to stimulate consumption, while the beleaguered property sector remained a key drag on the economy, as the decline in home prices accelerated 2.4% year over year in November, from 2.2% in October. In Taiwan (+13.9%), robust demand for AI continued to underpin economic performance, with exports surging 56% year over year in November to a record US$64 billion. South Korea (+30.8%) soared after reaching a trade deal with the US, which significantly reduced US tariffs in exchange for South Korea’s commitment to invest US$350 billion in the US. The economy expanded at the fastest quarterly pace in almost four years, as third-quarter GDP advanced 1.3% from the prior quarter. Exports soared to an all-time high of US$700 billion in 2025, thanks to a 40% year-over-year increase in semiconductor shipments in December.

In EMEA (+2.7%), Saudi Arabia (-7.6%) fell after the country’s Capital Market Authority announced a delay in reforms that will allow foreign investors to own a majority share in domestic companies. Non-oil business activity increased at its fastest pace in 10 months even as the headline PMI eased to a still-elevated level of 58.5 in November, from 60.2. The Saudi Central Bank reduced its repo and reverse repo rates by 25 bps — the lowest in three years — in lockstep with the Fed’s interest-rate cut. South Africa’s (+9.7%) consumer price inflation slowed for the first time in three months, to 3.5% in November, despite higher food prices. Third-quarter GDP increased by 0.5% from the prior quarter, driven by strong performances in the mining and agriculture sectors.

Fixed income
Global fixed income markets delivered positive total returns. The US began the quarter with the longest government shutdown on record, which delayed key economic data and forced the Fed to make policy decisions with limited visibility. The shutdown ended in mid-November, but persistent data gaps caused greater economic uncertainty. 

Fiscal policy developments emerged as a central theme. Notably, the UK passed a more growth-oriented Autumn Budget with deferred consolidation, while Japan’s new prime minister announced a record stimulus package to support growth and ease cost-of-living pressures. Inflation generally moderated but remained above most central bank targets. Global economic growth in the third quarter was uneven, with the US expanding above trend, the eurozone posting modest growth, and China showing a clear moderation in momentum.

Central bank policies continued to diverge. The Fed eased policy despite rising internal divisions among Fed policymakers, with the softening labor market having a greater weight in the decision. The BOE cut interest rates, while the ECB held policy steady. The BOJ hiked rates after noting that the weaker yen was pushing up import costs and adding to inflationary pressures. Sovereign yields in developed markets broadly moved higher, reflecting growing conviction that the rate-cutting cycle is nearing its end. In the US, the Treasury curve steepened as front-end yields declined and long-dated yields rose, driven in part by ongoing fiscal concerns. European and Asia-Pacific yields generally rose, except in the UK, where yields fell on fiscal optimism. In EM, sovereign yields mostly declined, with South Africa and Mexico outperforming on supportive policy and fiscal optimism.

Currencies

Currency markets were mixed. The US dollar remained rangebound, supported by robust economic growth but constrained by valuation concerns. The Swedish krona and Canadian dollar led G10 appreciation, while the Japanese yen weakened sharply due to expansive fiscal policy and a cautious BOJ. Latin American currencies outperformed, while Asian and EMEA currencies saw mixed results.

Commodities

Commodities (+1.0%) ended higher in the fourth quarter. Industrial metals and precious metals contributed positively to performance, while energy and agriculture & livestock detracted.

Energy (-5.0%) retreated, beset by a confluence of mild weather and inventory dynamics. Notably, natural gas (-2.9%) declined as temperate forecasts and a modest US Energy Information Administration storage withdrawal nudged inventories back above their five-year average. Gas oil (-4.0%), heating oil (-4.5%), gasoline (-4.7%), and crude oil (-5.6%) were weighed down by cautious optimism surrounding a potential Russia-Ukraine peace accord, which could curtail US sanctions. The forthcoming OPEC+ meeting is expected to reaffirm the group’s earlier resolve to pause production increases, underscoring a strategic preference for stability amid oversupply and tepid consumption growth. Nonetheless, risks persist due to the ongoing Russia-Ukraine conflict, US restrictions on Venezuela’s oil trade, and heightened tensions in the Middle East. Thus, while the market’s immediate trajectory reflects abundance, the undercurrents of geopolitical uncertainty continue to shape the energy landscape.

Industrial metals (+15.8%) surged. Copper (+22.6%) rallied on a multitude of developments, including supply disruptions, a declining US dollar, trade progress between the US and China, an improved outlook for Chinese economic growth, and significant investments in AI. Aluminum (+11.7%) rallied on tighter supply and higher demand from clean energy sectors like EVs and renewable power. Prices were also supported by reduced smelting output in China due to power shortages and environmental regulations, along with political unrest in Guinea that threatened bauxite exports. Nickel (+9.1%) surged following an announcement from leading producer Indonesia that supplies could be reduced to support the market. Zinc (+7.5%) rose on steady industrial demand, particularly from construction and manufacturing, despite broader market volatility. Lead (+0.5%) edged higher after the Shanghai Metals Market reported low domestic inventories, signaling tighter supply conditions.

Precious metals (+15.6%) rallied. Silver (+51.0%) extended its upward trend, driven by persistent global supply concerns and increasing demand from the renewable energy and industrial sectors, while mine production has largely remained stable. Gold (+12.2%) was bolstered by expectations of further US interest-rate cuts in 2026, geopolitical tensions, and trade uncertainties, which boosted demand for perceived safe-haven assets. Additional support came from a weaker US dollar and larger gold reserves in central banks to hedge against economic instability. 

Agriculture & livestock (-0.6%) ended lower. Corn (+3.5%) rose on robust demand and exports, which led to lower remaining supplies. Soybeans (+2.9%) traded higher on optimism surrounding US-China trade talks and stronger export sales figures reported by the US Department of Agriculture. Live cattle (-0.1%) and feeder cattle (-0.2%) fell after the US removed its 40% import tariff on Brazilian beef. Additionally, a softer US labor market and weaker consumer demand could weigh on prices. Lean hogs (-3.8%) declined as falling hog prices in China were driven by persistent oversupply and weak domestic consumption. Sugar (-8.7%) was pressured amid signs of higher Brazilian output and expectations of a bumper crop in India following abundant monsoon rains. Cocoa (-11.2%) slid as a robust West African harvest, delayed EU deforestation rules, and reduced manufacturer demand pushed prices to their lowest level in nearly two years in late November.