December market review: A risk-on finish to a surprising year
December was broadly a risk-on month, though performance varied by region. US equities were relatively subdued, with the S&P 500 up just (+0.1%) and the NASDAQ down (-0.7%), as leadership within technology continued to narrow. European markets were stronger, particularly in periphery Europe, with Italy (+3.7%) and Sweden (+3.4%) outperforming. Emerging markets rose around (+3%), extending their late-year recovery.
In Australia, Materials rallied strongly, supported by commodity prices and renewed interest in real assets. This strength was partially offset by weakness in IT and Health Care, leaving the ASX 200 Up (+1.3%) for the month.
Bond markets moved in the opposite direction, with yields rising across major markets as investors digested firmer inflation data and recalibrated expectations for rate cuts in 2026. Canadian 10-year yields rose 29bps, slightly ahead of Australia (+23bps). Currency markets reflected the shift, with the USD weaker (-1.1%), benefiting most major currencies, including the AUD (+1.9%).
2025 in review: A year where patience paid
Looking back, 2025 was a year full of surprises, and one best navigated by patience. Those who reacted aggressively to headline events or rapidly rewired economic assumptions often fared worse than investors who stayed disciplined and anchored to long-term plans.
Several long-held economic relationships were challenged. The interaction between tariffs, inflation, interest rates and unemployment proved less predictable than textbooks would suggest. Despite this, markets continued to move higher, even as consumer confidence weakened materially, a reminder that sentiment and markets do not always travel together.
While US growth and technology stocks again delivered strong returns, the second half of the year was defined by catch-up across other areas, including:
Gold, which re-emerged as a strategic asset
Emerging markets, after years of underperformance
Small caps, particularly outside the US
Australian value stocks, which materially outperformed growth
This was also a year of large regional rotation, with EAFE and Emerging Markets closing some of the valuation and performance gap to the US.
What mattered, and what didn't
What mattered |
What mattered less than expected |
|---|---|
Politics, and the growing influence of policy and geopolitics on markets |
Short-term risks and noise |
Asymmetric power, where surprise, technology and adaptability proved more influential than traditional displays of strength |
Constant tactical repositioning |
The takeaway
2025 reinforced a simple but often uncomfortable truth: markets reward patience far more consistently than prediction. In a year where almost everything was debated, from inflation to geopolitics, the investors who stayed aligned with their long-term strategy were ultimately the ones best rewarded.
Positioning into 2026: Discipline over prediction
As we look ahead to 2026, our focus remains on discipline rather than prediction. The past year reinforced how difficult it is to time markets or react to every headline, particularly when economic relationships are in flux and policy outcomes remain uncertain. Rather than chasing what has already worked, we continue to prioritise balance, diversification and resilience within portfolios.
We enter 2026 positioned to manage both opportunity and risk. That means maintaining exposure to growth where valuations and fundamentals justify it, while also preserving meaningful allocations to defensive and diversifying assets through fixed interest and real assets such as REITs and infrastructure, that can help stabilise portfolios if volatility returns.
Above all, our approach remains anchored to the same principle that proved effective through 2025: staying patient, staying diversified, and staying aligned to long-term investment objectives, even when the temptation to react is at its strongest.
More like this
