Despite geopolitical turbulence, equity markets closed 2025 with the third consecutive year of double-digit performances, while gold and fixed income also recorded solid annual returns. Looking ahead, the outlook for 2026 is broadly seen as constructive. However, recent short-term equity rotations reinforce the case for broadening exposures to structural growth themes. This week, investors will focus on US labour market data.
Market recap
Beyond the numbers
Macroeconomics
In recent weeks, the most important data in the US were the upward revisions to US Q3 GDP (to 4.3%). Domestic demand was sustained thanks to consumption, investment, and an exceptional positive contribution from net trade. Consumer confidence remained weak with concerns about the labour market. Indicators from the supply side sector (production, durable orders, and business confidence) were mixed, showing disparities across sectors and regions. The November inflation data came in lower than expected, having declined to 2.7% y/y. However, data collection was only partial due to the government shutdown, with no official estimates being made for the October index.
In the eurozone, consumer confidence deteriorated (index for the eurozone, Germany), except in Italy. Business confidence was mixed, rising in France but weakening in Italy. As a reminder, the European Central Bank (ECB) did not change its key rates at its December meeting (leaving them at 2%), and it revised its projections for growth and inflation slightly upwards for 2026.
In the UK, retail sales (November) and consumer confidence (December) were weaker than expected. The Bank of England (BoE) cut its key rates past December to 3.75%, but the committee was divided about the decision.
This week, major data releases will be concentrated in the US, with the most important for markets being payroll (December), the unemployment ratio, and final estimates for global PMI indices. In the eurozone, inflation estimates for December will be published.
Asset allocation: strategic views as at January 2026
Equities
Global equities ended the holiday-shortened week modestly lower (MSCI ACWI total return -0.3%), after closing 2025 on Wednesday with a total return of +22.9%. This marked the third consecutive year of double-digit gains, despite a barrage of policy headlines and economic uncertainties that persisted throughout the year.
Last week, the major US indices pulled back from the record highs reached in the previous week (S&P 500 -1.0%, Nasdaq -1.5%), with declines led by mega-cap technology stocks (the Magnificent 7 -2.5%) as investors rotated towards more value-oriented and defensive areas of the market. The global energy sector outperformed (+2.8%), supported by heightened geopolitical tensions, while utilities also benefited from the shift in positioning (+1.2%).
As the new year gets underway, January’s market performance will be watched closely. Historically, the month has sent a strong directional signal: since 1929, the S&P 500 has gone on to post a positive annual return following a January gain, or an annual loss after a January decline, about 72% of the time.
With the consensus already pencilling in a positive outlook on equities for the year which is partially reflected in valuations (S&P 500 12-month forward P/E 22.0x), near-term geopolitical developments may play a larger role in shaping both investor confidence and risk appetite in the weeks ahead.
The consensus has a positive outlook on equities for the year
Fixed income
Fixed income performance for the week was subdued amid a holiday-shortened period. Rates edged higher, with US 10-year Treasury yields up 6 bps to 4.19%, while markets are continuing to price in the next rate cut towards the end of the first half of the year.
On Tuesday, the Federal Reserve published the internal summary from its meeting on 9–10 December. While many members acknowledged that future cuts might be justified if inflation were to continue trending lower, a smaller group recommended maintaining the current range for an extended period. Rate-cut expectations for the January meeting held steady at roughly 15%.
For the year, bonds delivered solid gains, with Treasuries up 6.4%, investment grade (IG) +7.9%, high yield (HY) +8.7%, AT1s +11%, and emerging markets (EM) +14.3%, driven by a mix of tightening spreads and rates moving down by between 77 bps at the lower end and 40 bps at the 10-year mark. Returns were lower in euros (govies 2.3%, IG 3.3%), as Bunds rose 50 bps to close at 2.86%.
Over the weekend, Nicolás Maduro was captured by the US, triggering a regime change in Venezuela. Venezuela and PDVSA (Venezuela’s state-owned oil & gas company) hold around USD 100 billion in bonds (plus around USD 40 billion in unpaid interest), that, despite being in default since 2017, were part of the widely followed JPM Emerging Market Indices in 2024. Maduro’s ousting and US involvement raise hopes of a normalisation of government in Venezuela and the return of oil production which has dwindled since Maduro took power in 2013, potentially paving the way for an International Monetary Fund (IMF) programme and complex debt restructuring (given the plethora of claims, legal proceedings and political uncertainty) down the line. Venezuelan and PDVSA bonds had almost doubled during 2025 and are expected to rally a further 6–7 points from Friday’s close to the mid-30s.
Bonds delivered solid gains in 2025
Forex & Commodities
The main event for the USD over the coming week is the publication of US labour market data: JOLTS, ADP and NFP. The USD is likely to trade on the weaker side if the data show any weaknesses. In particular, markets will treat any decline in the JOLTS quit rate as a reason to sell the USD, because it signals that employees are less confident about the wider employment outlook.
The main event for the EUR will be the publication of preliminary CPI data for December. We note that eurozone CPI data have surprised to the upside in recent months, and another upside print may lead to a slight rise in ECB rate-hike expectations. This should have only a marginal impact on the EUR in the short term, supporting the EUR/USD at levels of around 1.17.
CHF exchange rates may react to the publication of CPI data, which are expected to print at 0.1% y/y, and 0.0% m/m. We note that recent inflation prints have surprised on the downside in recent months; however, the Swiss National Bank (SNB) steadfastly believes that inflation will rise over the course of 2026 and 2027, meaning that any downside surprises should have only a limited impact in the short term.
Gold surged to levels of above USD 4,400 per oz following events in Venezuela over the weekend. This rise is consistent with the wider theme of ambient geopolitical tensions, and we anticipate that this trend will support further gains over the coming years. In the near term, the main focus will be the publication of US labour market data, and any poor prints should support pricing in the near term. Overall, we maintain a constructive stance on gold, expecting a rise to levels of at least USD 4,600 per oz by Q4, with upside risks to levels of USD 5,000 per oz.
Following events in Venezuela, gold surged to levels of above USD 4,400 per oz
The opinions expressed herein are correct as at 5 January 2026 and are subject to change without notice. This information should not be relied upon by the reader as research or investment advice regarding any particular fund, strategy or security. Past performance is not a guide to current or future results. Any forecast, projection or target, where provided, is indicative only and is not guaranteed in any way.
