Markets faced sharp contrasts in 2025. Early in the year, US tariff rates surged to levels not seen since the 1930s, effecting multiple sectors. This shock caused a crash in developed market equities. Tracked by the MSCI World Index, they fell 16.5% in the month of April. By year end, however, we saw a rebound to a 21.6% gain. Fiscal and monetary stimulus fueled a rally across all major asset classes. It started narrow, centering around AI-linked firms, before broadening late in the year.
Growth stocks dominated in the US, while value outperformed in most other developed regions, leaving global style returns nearly tied at 21.3% and 21.6%, tracked by their MSCI indexes. Emerging markets led global equities with a 34.4% return (in US dollar terms), tracked by the MSCI EM Index. A weaker US dollar amplified non-US gains, and supportive fiscal and monetary policy expectations supported risk appetite into the last quarter. This was highlighted by increasing valuations and improving company fundamentals Ex-US, with US valuations starting the year at an elevated level.
Ultimately, while medium term inflation remains above target, fears of an inflation spike tied to tariffs proved unfounded and 2025 marked a large wave of policy easing. Combined with attractive yields and US dollar depreciation, this provided the backdrop for the Bloomberg Global Aggregate bond index return a strong 8.2%.
Stocks and Commodities
The AI theme dominated US equities in 2025. communication services and technology were the best performing sectors by a wide margin, with a 33% and 23.6% gain, respectively. Only two of the “Magnificent Seven” beat the S&P 500, as the market held them accountable to maintain their profitability in the mist of a huge wave of CAPEX spending. Consumer discretionary and staples sectors lagged, as weak job growth and soft consumer confidence made firms hesitant to pass on tariff costs. This prevented an inflation spike but hurt the breath of US equity returns, with the S&P 500 ending the year at 17.9%. In absolute terms, this looks to be healthy, but for the first time in the last 20 years, the S&P 500 failed to keep up with its global counterparts and ended the year as the weakest major market index.
In Canada, the S&P/TSX index had one of its best recorded years. Mainly due to the materials sector, which gained 100.6%. This was on the back of sharp price increases in gold and several other precious metals, including silver and copper. The rally caused projected profit margin expansion and led to re-ratings for Canadian mining companies. Other notable contributing sectors included financials at 35.3%, consumer discretionary at 31%, and technology, because of Shopify’s strong performance as part of the AI theme, with a 23.1% gain. Canadian small caps also had a strong year, finishing at 50.2%.
Emerging markets also had a stellar year. China gained 31.4% on domestic AI progress and export diversification, while India trailed at 4.3%. Beijing accelerated AI chip development under export controls. The implemented 10% U.S. tariffs had limited impact due to Chinese supply-chain shifts.
Asia ex-China also rode AI enthusiasm. Korea soared 100.7%, helped by semiconductor strength and governance reforms under the “Corporate Value-Up” plan. Latin American markets posted a 55.7% gain, after having a tough year in 2024, boosted by stronger currencies and early rate cuts.
Japan’s TOPIX rose 25.5% as PM Takaichi’s election fueled reflation hopes and a ¥21.3 trillion stimulus package.
Europe’s local returns were muted but currency shifts provided a tailwind and flipped the performance rankings. With the US dollar down 7%, euro up 13.4%, and sterling up 7.6% for the year, European equities delivered 20.4% in euros and 27.2% in sterling, far ahead of the S&P 500’s 3.9% and 9.8% in those currencies. The region benefited from cyclical improvements, including defense and infrastructure spending.
Commodities were lifted by precious metals, with the Bloomberg precious metals index up 80.2%. Gold benefited from strong ETF inflows and central bank buying, while silver surged 149.1% on industrial demand and supply deficits. These gains offset falling oil prices, which averaged about $69 for Brent and slid to $63 by December, pushing overall commodities up 15.8%. Gold ETFs saw record inflows of $89 billion, and holdings reached 4,025 tonnes globally.
Bonds
Risk-on sentiment spilled into bonds. As investor funds flowed into corporate and high yield, credit spreads compressed further from their already tight levels. From the USD depreciated against emerging market currencies, emerging-market debt led the return at 13.5% (in US dollar terms). Notably, Latin America currencies, as the Brazilian real and Mexican peso rose 11.3% and 13.5% against the USD. Returns were also supported by company fundamentals and capital inflows.
On the back of US Tariff policies, the Canadian labour market experienced an increasing weakness over 2025, ending up at a 6.8% unemployment rate in December, notably higher than the G7 average. According to Statistics Canada, nearly 9% of Canadian workers are employed in industries dependent on US demand. This provided a backdrop for the Bank of Canada to cut rates, which it did four times over the year. The policy rate ended 2025 at 2.25%, less than half of the peak of 5% in June 2024. However, this didn’t have the expected impact on bond returns. Canada’s 10yr yield only decreased 1 bp from the Bank of Canada’s first rate cut. The ICE Canadian bond universe return came in at 2.4% for 2025.
Global Investment grade credit returned 10.3%, with the US outperforming Europe because of higher yields. Both investment grade and high yield spreads compressed in Europe, but US credit still outperformed because of higher all-in yields. Default rates in both US and European high yield drifted higher during the year and headlines occasionally reported idiosyncratic blow-ups in private credit and leveraged loans. For the most part, however, fundamentals held up broadly and balance sheets remained resilient. The weaker USD provided a tail wind to developed international unhedged credit as well.
Globally, government yield curves steepened, as investors remained worried about fiscal spending and debt levels. US Treasuries led sovereigns with a gain of 6.3%, helped by Fed rate cuts, which amounted to 75 bps in the second half of the year, on the back of muted inflation and soft labor-market data. Trump’s aggressive tariff announcements also caused markets to price in slower growth and a projection of lower rates, an additional tailwind for treasuries. The government shutdown amplified those dynamics by disrupting data releases and muddying the Fed’s visibility on the economy, which increased the premium investors placed on safety and liquidity.
UK Gilts gained 5.0% as the Bank of England cut a total of 100 bps from its policy rate over the year. Sticky inflation meant price growth stayed above target, but slow hiring and moderating wages allowed the Bank to move forward with cuts. Fiscal risks also remained contained with the government delivering a budget that was taken positively.
Within Europe, peripheral region sovereign bonds outpaced core country bonds. However, France became a pressure point. Political upheaval and contentious budget debates saw French spreads widen over German bunds throughout the summer and autumn, as investors deemed French credit to be higher risk. At times it outpaced those of generally higher risk countries such as Italy, Spain, and Greece.
Germany experienced a notable policy pivot. After roughly 15 years of fiscal restraint, the German government started stimulus, committing to large‑scale defense and infrastructure spending. This pushed bund yields higher and left core German bonds in the red.
Japan also saw negative returns as the Bank of Japan normalized policy and fiscal stimulus fears lifted 10-year yields up 99 bps to 2.1%, and 30-year up 113 bps to 3.4%.
Conclusion
After a decade of US technology leadership and a strong US dollar, 2025 marked a turning point. Returns broadened across regions and asset classes, and currency effects reasserted themselves as a key driver of performance. For investors, the year was both rewarding and instructive, underscoring the importance of diversification and the impact of foreign exchange exposure on total returns.
Looking ahead to 2026, this is likely to persist. Europe’s fiscal stimulus should begin to filter through to economic data, supporting a meaningful acceleration in activity across the continent. As growth converges globally, the US dollar is expected to further weaken at a moderate pace, creating a headwind for US-centric portfolios while enhancing returns for international assets.
