Monthly Market Review — December 2025

Equities

Global equities (+0.8%) advanced in December, supported by resilient earnings and supportive policy measures that underpinned elevated valuations. In the US, inflation remained contained, enabling decisive policy action to address a softening labor market. Both the US Federal Reserve (Fed) and Bank of England (BOE) lowered policy rates by 25 basis points (bps), while the Fed introduced new Reserve Management Purchases (RMPs) to bolster liquidity. The European Central Bank (ECB) held rates steady against a relatively positive economic backdrop and subdued inflation. The Bank of Japan (BOJ) raised its policy rate by 25 bps, to 0.75%, signaling further hikes in 2026 to support the currency as the economy transitions through the impacts of tariffs. In China, the Manufacturing Purchasing Managers’ Index (PMI) moved into expansionary territory for the first time in eight months and the country’s trade surplus surpassed US$1 trillion for the first time. However, weak domestic demand and a sustained property slump continued to weigh on China’s economy. Geopolitical and trade tensions persisted, yet the impact of US tariffs has been more benign than feared, as the US statutory tariff rate declined to 15.7% by year's end, down from a daunting 30% peak set in April.

US
US equities (+0.1%) rose for the seventh consecutive month, registering a 17.9% gain for the year. A concentrated group of mega-cap technology stocks accounted for an outsized share of the market’s return in 2025, leading a vast majority of diversified equity investment managers to underperform the broad market. 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 sharp rise in exports, business investment on equipment and AI, and increased government spending on defense. Economists highlighted that economic gains were unevenly skewed toward higher-income households and large corporations, while middle- to lower-income households and small businesses were more financially constrained. The Fed reduced interest rates by 25 bps to a target range between 3.5% and 3.75%. Fed policymakers remained unusually divided on the future path of rates amid elevated inflation, a cooling labor market, and a solid economy, with the Fed’s median dot-plot projection showing only one potential rate cut in 2026. In November, the Consumer Price Index rose at the slowest pace since early 2001, although the encouraging result was likely skewed by disruptions in data collection due to the government shutdown.

Economic data released during the month indicated that the economy remained solid. The labor market continued to soften, with nonfarm payrolls increasing modestly by 64,000 in November following October’s 105,000 decline — driven mainly by a 162,000 drop in government employment. 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. According to a delayed Commerce Department report, headline retail sales were flat in October after a slight gain in September. However, control-group sales (excluding food services, automobiles, building materials, and gas) climbed 0.8% to a four-month high in October, while preliminary reports indicated that holiday sales were approximately 4% higher compared to the same period last year. The Conference Board’s Consumer Confidence Index slumped to 89.1 in December — the lowest since April — on more pessimistic views of the labor market and business conditions and inflation anxiety. Modest declines in home prices and mortgage rates and a larger housing inventory slightly boosted existing-home sales and lifted pending home sales for the fourth straight month to their highest level since February 2023.

The manufacturing sector remained in contractionary territory in December as the Institute of Supply Management (ISM) Manufacturing Index modestly eased to 47.9. In November, services sector activity expanded at the fastest pace in nine months, with the ISM Services Index increasing slightly to 52.6 in November. Notably, prices paid for services and materials grew at the slowest pace in seven months, suggesting that inflation is easing. The NFIB Small Business Optimism Index improved to 99.0 in November amid a notable rise in the sales outlook, which helped boost hiring intentions.

Within the S&P 500 Index (+0.1%), 5 of the 11 sectors posted positive results for the month. Financials (+3.1%) was the best-performing sector, led by banks (+5.6%). Materials (+2.2%), industrials (+1.3%), and consumer discretionary (+0.8%) also outperformed. Utilities (-5.1%) was the worst-performing sector, while real estate (-2.2%) and consumer staples (-1.6%) also lagged the index.

Europe
European equities (+2.6%) ended higher. Eurozone business activity continued to expand in December but at the slowest pace in three months; the HCOB Flash Eurozone Composite PMI eased to 51.9, marking the first full calendar year of expansion since the COVID pandemic. Notably, German output continued to increase, but French business activity came close to stalling. The ECB left interest rates unchanged for the fourth consecutive meeting amid resilient economic growth and inflation near the ECB’s target. The central banks of Norway and Sweden also kept interest rates unchanged, while the BOE cut interest rates 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 ECB’s latest projections. European Union 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 continued to contract mildly in December; the HCOB Eurozone Manufacturing PMI slipped to 48.8 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. Notably, input prices rose at the fastest pace since August 2024, while output prices continue to decrease. The HCOB Flash Eurozone Composite PMI revealed that services sector activity expanded in December for the seventh consecutive month, helping to offset a decline in manufacturing. Input costs accelerated, while output price inflation continued to soften.

In Germany (+3.1%), 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. The UK’s (+2.2%) 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 largest 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 (+0.6%) the 10-year government bond yield rose to nearly a 14-year high 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 (+1.1%) rose over the month. Japan’s (+1.0%) economy contracted at a faster pace in the third quarter than initially reported, with GDP shrinking at a 2.3% annualized rate, reinforcing the case for Prime Minister Sanae Takaichi’s stimulus package announced in November. The weaker data added some complexity ahead of the BOJ’s policy meeting, although economists believe that the decline was largely driven by a temporary drop in housing investment due to regulatory changes. Exports rebounded — led by increased shipments to the US — and business sentiment improved, strengthening the prospects of sustained wage hikes ahead of spring labor talks. Against this backdrop, the BOJ raised rates by 25 bps to a 30-year high of 0.75%, signaling further policy tightening. However, 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 further bolstered prospects of a gradual policy-tightening path.

In Australia (+1.9%), minutes from the Reserve Bank of Australia’s (RBA’s) December meeting delivered no hawkish surprises, with interest rates left unchanged at 3.6%. RBA 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 might be needed. Third-quarter GDP rose at a solid 0.4% quarterly pace but below the forecast 0.7%; investment, consumer spending, and housing activity strengthened, supporting views that the RBA’s truncated easing cycle is over and fueling the potential for tighter monetary policy if inflation persists. The view was echoed after household spending beat expectations and surged 1.3% in October, the biggest gain since January 2024. 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. Even so, firmer spending and wage data pushed the Australian dollar to a more than one-year high.

In Singapore (+0.6%), inflation eased in November, with core consumer prices rising 1.2% year over year, undershooting expectations, and signaling moderating inflation pressures. Surprisingly robust annual GDP growth of 4.8% in 2025 was driven by buoyant semiconductor and electronics demand, with a resilient global economy helping to cushion the initial impact of US tariffs. 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, enhanced 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 (+2.6%) advanced, with Europe, the Middle East, and Africa (EMEA) leading the gains, followed by Asia and Latin America.

In EMEA (+3.2%), Saudi Arabia’s (-0.2%) 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 (+5.6%) 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 solid performances in the mining and agriculture sectors.

In Asia (+2.6%), China’s (-1.4%) 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. Consumer Price Index inflation accelerated to a 21-month high of 0.7% in November, mainly driven by higher-than-expected food prices, while persistently soft domestic demand heaped pressure on the government to stimulate consumption. In November, industrial output waned more than expected, and retail sales growth slowed for the sixth straight month. The beleaguered property sector remained a key drag on the economy; the decline in home prices accelerated 2.4% year over year in November, from 2.2% in October. Encouragingly, factory activity expanded at a faster-than-expected pace in December, ending eight consecutive months of contraction. In Taiwan (+6.0%), 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’s (+10.4%) 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 Latin America (+1.8%), Brazil’s (+1.0%) third-quarter GDP grew only 0.1% compared to the previous quarter. A lackluster services sector and modest household spending reinforced views that ultra-tight monetary policy is cooling the economy, boosting 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 (+1.5%), lawmakers approved tariffs of up to 50% on China and other countries, effective January 1. The central bank cut its benchmark interest rate by 25 bps to 7%, despite raising its inflation forecast from 3.5% to 3.7% for the first quarter of 2026 after consumer prices rose more than forecast in November.

Fixed Income

Global sovereign yield curves diverged as monetary authorities adopted distinct policy approaches. In select regions, term premiums increased, reflecting heightened fiscal pressures and elevated issuance requirements. Credit spreads compressed, and most fixed income sectors delivered positive excess returns. The Fed and BOE each cut rates by 25 bps, while the BOJ hiked rates by 25 bps. Most other major central banks, including the ECB and the Bank of Canada, kept policy rates unchanged. According to Bloomberg, the US Aggregate Index returned -0.15% for the month, outperforming duration-equivalent Treasuries by 0.18%. The Global Aggregate Index returned -0.21% in US$-hedged terms, exceeding duration-equivalent government bonds by 0.14%.

Global sovereign yields moved broadly higher as investors reassessed monetary policy trajectories and the persistence of inflation. In the US, front-end yields declined modestly while long-dated yields edged higher, reflecting elevated term premiums, ongoing fiscal supply concerns, and resilient growth expectations. In Europe, German bund yields rose on sticky services inflation and wage pressures, reinforcing expectations that the ECB’s easing cycle has ended. UK gilt yields were volatile due to fiscal outlook developments and mixed inflation data but ended the month marginally higher. In APAC, Australian yields increased as resilient domestic data and cautious RBA messaging reduced expectations for near-term rate cuts, while Japanese government bond yields rose more materially on continued BOJ policy normalization, reduced bond-market intervention, and growing confidence in sustained inflation and wage growth. EM yields were mixed but most moved higher as sticky inflation and cautious central banks kept policy restrictive for longer. South Africa was a notable outlier with yields declining on improved fiscal prospects and firmer business confidence.

US investment-grade corporate bonds generated negative total returns but outperformed duration-equivalent Treasuries. The financials, industrials, and utilities sectors outperformed relative to duration-equivalent government bonds. High yield generated positive total returns. Performance by credit quality was mixed, as B-rated bonds posted the strongest returns, followed by CCC- and BB-rated bonds. The best-performing sectors during the month were paper, gaming, and cable satellite, while retailers, media, and wireless lagged.

Global credit bonds outperformed duration-equivalent government bonds as spreads tightened, with financials, industrials, and utilities outperforming duration-equivalent government bonds. US dollar- and euro-denominated corporate bonds generated negative total returns, while sterling-denominated issues advanced. Within emerging markets, local market debt outperformed external debt. Spread narrowing aided external debt performance, while an increase in US Treasury yields detracted from results. EM currency appreciation and EM rate movements contributed favorably to local market results. Among securitized assets, agency and commercial mortgage-backed securities, as well as asset-backed securities, also outperformed government bonds.

Currencies

The US dollar broadly weakened against G10 peers as markets fully priced the Fed’s year-end rate cut and anticipated further easing in 2026. A softer dollar backdrop supported commodity-linked currencies, while the euro advanced and the pound sterling approached recent highs, buoyed by comparatively more hawkish and stable policy stances from the ECB and BOE, where less aggressive easing was priced. In contrast, the Japanese yen continued to depreciate against the US dollar as the policy mix kept the yen under pressure. EM currency performance was mixed. High-carry Latin American currencies such as the Mexican peso and Chilean peso were resilient on wider rate differentials and strong commodity linkages; the South African rand strengthened on an improved domestic monetary policy outlook and rising global risk appetite; and the Brazilian real and Turkish lira depreciated against the US dollar.

Commodities

Commodities declined modestly (-0.3%) in December. Industrial metals, precious metals, and agriculture & livestock contributed to performance, while energy detracted.

Energy (-4.2%) fell during the period. Crude oil (-1.5%), gasoline (-5.7%), gas oil (-6.4%), and heating oil (-6.9%) closed lower on worries about oversupply, driven by easing production cuts from OPEC+ and increased output from non-OPEC countries. Despite diplomatic overtures, significant risks endure, as the Russia-Ukraine conflict remains unresolved, US sanctions continue to constrain Venezuela’s oil trade, and escalating tensions in the Middle East further cloud the global outlook. Natural gas (-17.4%) also declined, pressured by a milder near-term weather forecast and a storage report by the US Energy Information Administration indicating a smaller-than-expected storage withdrawal, which pushed inventories above their five-year average.

Industrial metals (+7.9%) rallied during the month. Nickel (+12.4%) surged following an announcement from leading producer Indonesia regarding potential supply reductions aimed at supporting the market. Copper (+11.6%) rallied on supply disruptions, a declining US dollar, improved outlook for Chinese economic growth, and significant investments in artificial intelligence. Aluminum (+4.2%) ended higher, as limits on Chinese smelting capacity and reduced European production, caused by higher electricity costs, lowered global inventories. Meanwhile, demand from the construction and renewable energy industries remains firm. Zinc (+1.7%) increased on limited supply and healthy demand within China. Lead (+1.3%) was supported by macroeconomic conditions and ongoing constrained raw material supply.

Precious metals (+4.5%) ended higher. Silver (+23.9%) extended its upward trend, driven by persistent global supply concerns and rising demand from the renewable energy and industrial sectors, while mine production has largely remained stable. Gold (+2.4%) was bolstered by expectations of further US interest-rate cuts in 2026, along with geopolitical tensions and trade uncertainties, which boosted demand for 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 (+0.5%) rose. Cocoa (+10.6%) remained elevated due to supply constraints associated with reduced harvests attributed to climate change. Feeder cattle (+8.7%) and live cattle (+6.7%) jumped on low cattle supply, high production costs, solid consumer demand, and tariff policy uncertainty in Brazil. Wheat (-4.5%) and soybeans (-8.5%) were pressured by favorable weather in Brazil and Argentina that signaled good crop prospects, while weak US export inspections highlighted soft demand. The US Department of Agriculture’s prediction of higher global wheat production, along with a neutral-to-bearish World Agricultural Supply and Demand Estimates report for soybeans, further pressured crop prices. Coffee (-8.2%) slid on an optimistic supply outlook.