A Review of Market Drivers for 2025 with a Spanish Inquisition for 2026?
Published / Last Updated on 19/12/2025
The initial shocks from 31st October 2024 Autumn Budget with huge increases for National Minimum Wage, in excess of inflation for all and over 20% for some younger workers combined with a huge increase in Employers National Insurance Contributions to 15%, 2025 started the year with dull overtones for the UK economy. We had forecast economic slowdown, increases to unemployment and limited if any recruitment for younger workers. Did the Prime Minister and the Chancellor ever expect it would go any other way?
January 2025
The US economy continued to strengthen, US inflation fell, speculation of US interest rate cuts, a weak £, the UK economy stagnated, Japan feared interest rate rises and President Trump suggested Canada should become the 51st State of the USA.
February 2025
The Federal Reserve held interest rates in the US and introduced trade tariffs on Canada. Both FTSE 100 and the German DAX set new record highs, but some investors were started to get nervous with Gold hitting record highs too. We started to talk about ‘locking in profits’ in the West from the previous 12 months and we started shifting our equity weighting to Japan and the Far East, to buy in with for value given they were up to 12% off their year highs, not even thinking about record highs.
March 2025
Tariff increases for China and AI/Tech Stocks bouncing around pushing Far East markets down, we continued our switch away from the West to the Far East (buy low/sell high), with all markets falling and Canda pulling US booze of its shelves, with a “buy Canadian” policy as US tariffs increased. UK markets were more subdued to as businesses prepared for the minimum wage/employers NIC hit, due to start on 6th April 2025. March was also the time for that famous Trump/Zelensky ‘spat’.
April 2025
Trumps announced Global Trade Tariffs causing a shock, market correction (-10% or more) and a near miss for a market crash in some sectors (-20%). This gave us and many investors the opportunity to buy back in quickly at low prices and anyone who ‘bought the dip’ did well as markets started to rebound towards the end of April.
May 2025
US tariff deals done with UK (10% tariff) and other countries but not the EU, a US/Ukraine minerals deal was agreed, the many countries including EU, US and UK had interest rate cuts. These cuts and the tariff deals struck, meant optimism and markets rebounded with record market highs in the US and Germany. We continued to spread our investments with weightings towards the Far East, Bonds and Fixed Interest funds.
June 2025
Yet more tension and market bounces as Iran/Israel took ‘pot shots’ at each other, even more tension with Iran also hitting airbases in Qatar in retaliation for US strikes on Iranian nuclear facilities. Markets again bounced back up for more record highs in the West and year highs in the Far East on hopes of tariff deals after Trump suspended tariffs with a deadline in July to resume if no deals were done.
July 2025
Another month of stock market record highs, but only by 1% or less, so just bouncing around the +29% to 31% range for the year on average across the markets that we track as more tariff deals were completed ahead of the deadline. July was the Rachel Reeves ‘tears in the Commons incident, with the Chancellor subsequently claiming it was for a personal matter and nothing to do with her role as Chancellor being under pressure given UK GDP was slowing down and we had stubborn inflation. By this month we are had completed our full transition for reduced weighting in the West, locking in highs, higher weightings in lower Far East markets as well as Bonds and Fixed Interest funds.
August 2025
A fantastic month to lock in gains as most stock markets set record highs after EU/US tariff deals, with the indices that we track now back up to +32% for the year on average, wiping out the April correction and then some. “Be fearful when others are greedy”.
September 2025
Yet more record highs in the US, but only just as Europe fell back in mid September. “Economic despair” was a phrase we used for the UK in September as UK, Germany and France all lagged. We also mentioned fears of a “bull trap” where sectors such as Industry and Transport in the US and Europe usually correlate i.e. they are directly related to each other, so should rise and fall and the same time but they were not, they were travelling in different directions signifying an uncorrelated market and there risky. “ Be fearful …..”
October 2025
Stock markets set new record and highs and bounced back down again, with trading ranges of +28% to 32% range for the year on average across the markets that we track, demonstrating that in real terms, markets had only grown by 1% in the last 3 months. Was it time to lock in profits as gold set new records as even more investors started to go defensive. France was in turmoil as the Prime Minister resigned and Japan totally went the other way as the Iron “Lady of Liquidity”, Sanae Takaichi became Japan’s first female Prime Minister pushing the Nikkei to a record high and +60% on the year.
November 2025
Euphoria in the Far East continued, with both Japan and Indian stock markets hitting +70% for the year. That was enough for us and we started the move weightings away from the Far East and Asia (just a small amount of exposure in India, but a fabulous return). This was the month that even more investors were perhaps adopting the “bear fearful when others are greedy” approach. Record out flows from stock market linked pensions and investment funds evidence of this. Looking to market commentators, some had bullish (positive) others had bearish (negative) market sentiment. We had been using the term “confused” for some time at that point. US markets set records for 3 consecutive weeks in anticipation of rate cuts. UK investors we much more subdued in anticipation of the Autumn Budget 2025, unemployment up to 5%. Globally, fears continued for an AI/Tech bubble bursting.
December 2025
So here we are again, Japan has fallen back with fears of interest rate rises, the UK and US have cut interest rates to boost economies as inflation is down and we continue to try and steer clients through an investment market where the “economics play book has been thrown out of the window”, where it is record government borrowing both in the UK and US. Europe has frozen inrterest rates and forecast for growth whilst UK unemployment is up to 5.1% and GDP growth ie negative at -0.1%, so not much makes sense.
Looking Ahead to 2026
Mixed messages from market commentators, some are bullish (positive) others are bearish (negative) for stock markets and the global economy in 2026. With interest rates coming down, we do “expect” stock market growth in 2026 hence us suggesting to many clients to ‘hedge their bets’, lock in profit but keep some exposure to markets at a similar level to this time last year, to take advantage of any future market growth but if there is a correction, there are reserve funds in place to buy back into lower priced markets …
… “but nobody expects the Spanish Inquisition …. our chief weapon is surprise, surprise and fear, our two weapons are fear and surprise and ruthless efficiency, our three weapons are ….” (credit Monty Python). We do fear surprises in 2026, and we may not be ruthlessly efficient, but we are usually quite efficient.
Thank you for supporting us in 2025 and we look forward to a calmer 2026. Season’s greetings and a Happy New Year to you all.
