Financial Markets in 2025: Five Lessons for Investors and What They May Mean for 2026

December 2025

By Will Glyn

Heading into 2025, the backdrop hardly looked encouraging. Liberation Day tariffs, geopolitical tensions in the Middle East and Eastern Europe, concerns about the long-term impact of Artificial Intelligence on employment, rising government debt and constant debate over stock market valuations all pointed towards a difficult year for investors.

Yet for many, 2025 ended up being far better than expected. Equities, bonds and commodities all delivered positive returns, and signs of cooling inflation, steady economic growth and expectations of further interest rate cuts have left investors cautiously optimistic about 2026. Even so, sharp moves in cryptocurrencies and a powerful rally in gold and silver suggest that not everyone is convinced the path ahead will be smooth.

Below is a snapshot of asset class performance:

One striking development was the weakness of the US dollar. President Trump’s tendency to announce policy changes without warning unsettled currency markets, and after years of strong performance, investors were increasingly looking to diversify away from the US.

This shift helped markets where valuations were more modest, such as Europe, Japan, emerging markets and even the UK. Europe, in particular, benefited from renewed focus on defence, infrastructure and energy security, while Germany’s decision to relax its debt brake provided an additional lift.

Commodities also tended to benefit from a weaker dollar. However, the sharp rally in gold and silver, combined with a late-year stumble in cryptocurrencies, hinted that some investors were seeking protection against potential turbulence in 2026.

Below is a snapshot of major equity market performance:

With that context, here are five key lessons from 2025 and what they may signal for the year ahead.

1. Concerns over tariffs and trade proved temporary

Trump’s “Liberation Day” tariff announcement in April initially caused alarm, but markets quickly recovered as implementation was delayed and watered down. By the autumn, the administration had struck deals with various exporters as rising food prices became a political issue.

Although tariffs still reached their highest effective rate since the 1930s, markets concluded that the eventual economic impact would be manageable. The Yale Budget Lab estimated an effective tariff rate of 17.3 percent by November. Revenue from tariffs rose sharply, prompting Trump to float the idea of funding tax cuts from the proceeds, although the legality of the measures continues to be tested in the courts.

Markets appear to have priced in the assumption that tariffs will not meaningfully dent growth or corporate profitability. If inflation proves stickier than expected, or if margins come under pressure next year, this could easily be tested.

2. Emerging markets staged a powerful comeback

The strongest performers of 2025 included South Korea, Greece, South Africa, Poland and Chile. After almost two decades of underperformance relative to developed markets, emerging markets entered 2025 with attractive valuations, lower debt burdens in many cases, and greater room to cut interest rates.

South Korea and Taiwan benefited from their dominance in advanced semiconductor manufacturing, while commodity exporters such as Chile gained from rising demand. Political shifts in Latin America added further momentum, as did expectations of renewed stimulus in China and Hong Kong following their property downturns.

A weaker US dollar would provide additional tailwinds in 2026 by easing the burden of dollar-denominated debt.

3. Bonds returned to favour after a difficult 2024

Fixed income saw a strong revival in 2025 thanks to more than 120 interest rate cuts globally and growing belief that inflation had peaked. Investors were willing to reintroduce duration risk to portfolios, and even credit markets enjoyed solid demand as long as growth remained stable.

However, the picture is mixed heading into 2026. Although further rate cuts could support returns, valuations in investment grade and high yield credit look tight relative to history. Meanwhile, rising government borrowing in the US, UK, France and Japan means that sovereign bond issuance will remain heavy.

Bond markets may continue to wrestle with two competing forces: concern about large fiscal deficits versus the possibility that central banks could once again turn to ultra-low rates or quantitative easing in the event of an economic setback.

4. Oil continued to drift lower

Despite geopolitical risk, sanctions and a generally stable global economy, Brent crude fell steadily after peaking above 80 dollars early in the year. Production increases from OPEC+ weighed on prices, and even the International Energy Agency’s softening stance on peak oil demand failed to lift sentiment.

Oil’s decline has sharpened debate about whether hydrocarbon assets risk becoming stranded. Investors remain sceptical despite historically generous dividends and buybacks, with the energy sector now representing only 3.3 percent of the S&P Global 1200, well below its long-term average.

Even so, the majors have been scaling back investment in new production. Should demand prove more resilient than expected, supply growth could remain constrained, potentially leading to firmer prices and renewed interest from investors who view energy as a hedge against inflation or fiscal risk.

5. Gold and silver stood out as safe-haven assets

The precious metals rally was one of the strongest themes of 2025. Investors turned to gold and silver for several reasons: protection against inflation, concern over currency debasement, geopolitical uncertainty and a desire for simplicity in a market increasingly dominated by leverage and complex instruments.

These gains may moderate if the ideal scenario of slower inflation, solid growth and lower interest rates plays out in 2026. However, any deviation from that path — whether through persistent inflation, policy missteps or a downturn in risk appetite — could push precious metals higher still.

Final Thoughts

2025 was a year that surprised on the upside despite an unpromising start. The resilience of markets demonstrated how quickly sentiment can shift, and how important it is for investors to remain diversified and disciplined rather than trying to second-guess political or economic headlines.

As we approach 2026, the key themes to watch include the path of inflation, the durability of economic growth, the trajectory of interest rates and the currency markets’ verdict on US policy. While risks remain, the broad-based gains of 2025 show that opportunities can emerge even when the backdrop looks challenging.

Will is an Independent Financial Adviser with over a decade of experience helping expats make the most of their international status.