At the start of 2025, Darius McDermott, managing director of FundCalibre, says he was not expecting much of the stock markets but that changed, significantly, as the year has progressed. So where does that leave us now?
“Plodding is not the most encouraging of words, but it feels like the sort of thing we’d be happy to take from markets in 2025.”
These were my own words when I was asked, 12 months ago, to describe the outlook for markets this year. It started a bit “ploddy”, but things changed rapidly once we were introduced to Donald Trump’s volatile world. What we have ended up seeing is a good year for stock markets, which has surprised a lot of people after the tariff-induced sell-off that threatened to plunge us into a global recession.
Markets across the world have rallied, with China leading the way, but Europe, Japan and the FTSE 100 have all done very well. The US has also had another good year, and the Nasdaq and tech stocks have continued their run – supported by excitement around artificial intelligence.
Global equities are now up almost 12% year-to-date*, having touched record highs in several developed markets. The consequence of the strong run is that markets are now more expensive and, as a result, there is more caution from this point.
But caution does not mean it is time to start hiding money under the mattress, it is about being sensible and finding valuation opportunities in 2026.
For those who are nervous about the markets being at record highs, I would point out that this is nothing new. Take the US market as an example: of the 1,187 months since January 1926, the market was at an all-time high in 363 of them, 31% of the time. And, on average, 12-month returns following an all-time high being hit have been better than at other times: 10.4% ahead of inflation compared with 8.8% when the market wasn’t at a high. Over three years this stands at 7.5%**. The market can push on from this point.
Will the winners of 2025 repeat the trick, or can others shine in 2026?
There was a good mix of performance in 2025 – which is a welcome change from the dominance of US large-caps in the past decade. Precious metals led the way with stellar numbers, with some of the best funds returning more than 100%. It is hard to see such strong performance being repeated in 2026, particularly in the case of gold, which currently stands at $4,200 an ounce. What gold has done is mind its own business and has increased in value, while many global currencies – notably the US dollar – have depreciated in value. It has been a physical store of wealth which has benefitted from a more challenging period.
While we should not necessarily expect physical gold to repeat the success of 2025, gold equities (miners) could have further to run as could silver. Despite rising more than 80% year-to-date (USD), the silver market is tight, having been at a consistent deficit for the past five years. Industrial demand is strong, driven by solar panels, electric cards, data centres and potentially solid-state batteries in the future.
Demand from India and China is also strong, while London vaults are also running low on silver. There are lots of reasons to think the price could increase further. Good options for consideration in this space include Jupiter Gold and Silver and the WS Amati Strategic Metals fund, both of which have reasonable allocations to the metal.
Having been largely ignored in recent years, emerging markets could continue to benefit if the dollar weakens further. Emerging markets equities are up 20% in 2025*, with China leading the way with strong performance following the policy pivot in late 2024. Despite the recovery, valuations in China still look attractive. The 12-month forward price-to-earnings for the MSCI China is at roughly a 40% discount to the S&P 500***. Much of the rise has been due to large-cap technology firms, with hopes of a broader recovery across other sectors driven by earnings growth and improving consumption.
India has had a more challenging 2025, with uncertainties around a trade deal with the US and the lack of a clear AI theme cooling down what was an incredibly hot market 12 months ago. That said, Indian equities now look more attractive from a valuation perspective than they have done for several years. Investors wanting single-country funds within emerging markets might consider the likes of the Fidelity China Special Situations Trust or the Chikara Indian Subcontinent fund, a high-conviction, style-agnostic portfolio of 25-40 names. Those who want broader exposure to the likes of the “value up” programme in Korea, and other themes within the region, might look to the likes of the Aberdeen Asian Income Fund (AAIF), which invests in around 40-60 holdings and has a dividend yield of around 6%.
UK small-caps and specialist equities still look attractive
UK smaller companies have been on one of their worst runs in living memory relevant to their large-cap peers. Capital has fled from UK small-caps, but any small change in sentiment or policy could trigger a big recovery in our view. Experienced names like Liontrust Smaller Companies and new ones like WS Raynar UK Smaller Companies can pick up great companies at exceptional prices.
Specialist equities, like healthcare and insurance, have been lagging while the world talks about AI, while REITs also offer opportunities, having suffered since rates started rising aggressively in 2022. Rates are now starting to come down, yet many REITs remain severely depressed and trade on wide discounts and big dividend yields. You can access them through a specialist vehicle like the TR Property Trust or through a multi-asset option like VT Momentum Diversified Income.
There is no doubt US equities have been on an incredible run, recently fuelled by the boom in AI, but if 2025 is anything to go by, the market appears to be broadening out in terms of style and geography. I think 2026 could be a continuation of this theme and a balanced, diversified approach may prove the most fruitful.
*Source: FE Analytics, total returns in pounds sterling, 31 December 2024 to 3 December 2025
**Source: Schroders, 21 July 2025
***Source: Fidelity International, September 2025
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Darius’s views are his own and do not constitute financial advice.
Main image: julian-hochgesang-3-y9vq8uoxk-unsplash
