Investment Update January 2026

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We wish you a happy and prosperous 2026.

Global investors waited patiently for the year‑end Santa Claus rally to deliver, but it failed to materialise in any meaningful way. Even so, 2025 proved to be a strong year for markets overall and a profitable one for clients in our Alpha Beta portfolios. In the update that follows, we review December’s market dynamics, and we encourage you to read our separate forward‑looking article, The K‑Shaped Conundrum, for deeper insight into the challenges and opportunities ahead.

U.S. equity markets ended December essentially flat in local currency terms, with the S&P 500 up just 0.1%, the Nasdaq down 0.5%, and the Dow Jones gaining 0.9% for the month. However, for UK investors, returns were softer after adjusting for currency. The U.S. Dollar Index fell from 99.41 to 98.05 during December, a decline of roughly 1.4%, (and weaker by around 10% on the year) meaning the pound strengthened over the month.

Investors engaged in broad profit‑taking after a strong year in which the S&P 500 gained over 16%, prompting weakness across several large‑cap technology names that had driven much of 2025’s advance. Early‑month declines were triggered by weak manufacturing data, rising bond yields, and pressure from a cryptocurrency sell‑off, all of which dampened risk appetite. Sector performance was mixed, with Utilities, Real Estate, and Healthcare dragging the S&P 500 lower, while Financials and Materials offered only modest support. Corporate America enjoyed a strong 2025 with overall earnings growth positive, but technology firms leading the charge.

Callum Thomas, Weekly S&P500 ChartStorm, January 4, 2026, Topdown Charts and LSEG, https://www.topdowncharts.com

The 10‑year Treasury yield rose to 4.17%, up from 4.01%, and the 30‑year jumped to 4.84%, up from 4.66%. This steepening reflected shifting expectations after the Federal Reserve’s December 0.25% rate cut, its third of 2025, as traders balanced signs of slowing economic momentum with resilient labour market data. Despite the late-month volatility, U.S. Treasuries still closed out their strongest full year since 2020.

Year‑end options trading activity, combined with renewed concerns about potential regional banking issues, added to the overall sense of uncertainty as the year ended.

Debasement of fiat currency and market‑related liquidity have been major contributors to market movements in 2025. With $10 trillion of debt scheduled for rollover in 2026, we anticipate that similar fiscal policies will remain in place.

Schuldensuehner, [Chart showing global liquidity (GLMOSUPP G Index) compared with S&P 500 performance], X (formerly Twitter), January 3, 2026, https://x.com/Schuldensuehner/status/2007247324427567210 . Chart citing Bloomberg (Global Liquidity, GLMOSUPP G Index, and S&P 500), data accessed via Bloomberg Terminal as of January 3, 2026.

It is worth noting that gold and silver delivered exceptional performance in 2025, with gold rising between c64% and c74% to finish above $4,300 per ounce, while silver far outpaced it, soaring roughly 138% to 144% and closing the year above $70 per ounce. This surge was driven by a combination of macroeconomic forces, including strong safe‑haven demand during global uncertainty, increased central bank gold purchases, and the weakening U.S. dollar and fiat currency debasement. Silver also benefited from robust industrial demand in sectors such as solar energy, data centres, and electric vehicles, along with tightening supply conditions and new export restrictions from major producers like China.

European markets in December showed a mixed but resilient picture as the year ended. Trading volumes were lighter due to the holiday period, yet major indices largely held on to strong annual gains. The pan‑European STOXX 600 dipped only 0.1% on the final trading day of the year, still capping its strongest year since 2021 with c17% total return for the year, supported by falling interest rates, Germany’s fiscal boost, and a rotation away from expensive U.S. technology stocks.

Germany’s public debt is projected to keep rising, reaching 65.2% of GDP in 2026 and 67.0% in 2027, reflecting sustained deficits and expanded fiscal spending. Defence and infrastructure spending are major culprits, although it is anticipated GDP is likely to respond positively from a low point. The German automotive industry, for so long the engine room of the economy, has continued to suffer as super-competitive Chinese products capture buyers’ imagination.

Schuldensuehner, Germany Consensus GDP Forecast , X (formerly Twitter), December 27, 2025, https://x.com/Schuldensuehner/status/2004953685512659437 . Chart citing Bloomberg, (Germany GDP Economic Forecast, EGGDDE 25 Index), data accessed via Bloomberg Terminal as of December 26, 2025.

The UK enjoyed a strong year, despite growing debt and questionable economic and fiscal policies – proving once again that the stock market is not the same as the economy. Certainly, this is true at home in the UK with international earnings proving important and specific sector biases – such as mining. UK markets were firm in December with the FTSE 100 posting a 2.45% gain for the month and helping to lift its overall 2025 return of around 21%, supported by strong performances in mining and defence stocks as well as optimism around future rate cuts. Trading volumes were thin during the holiday period, but the index still hovered near record levels, reflecting resilient investor sentiment despite broader global uncertainty. The UK’s ability to deliver consistent dividends is a key barometer of corporate health and brings appeal for specific categories of investors and portfolios.

Japan’s equity markets were strong but volatile in December, with the Nikkei 225 trading near-record highs before experiencing brief pullbacks. Early in the month, the index appeared solid but weak household‑spending data and rising expectations of a Bank of Japan rate hike pressured sentiment. By the end of the month, the Nikkei still closed at an elevated 50,339, capping a year in which it surged on AI‑related optimism, fiscal‑stimulus expectations under Prime Minister Takaichi, and robust corporate earnings.

In December, the yen remained under heavy pressure, hitting 11‑month lows against the U.S. dollar and prompting senior officials to warn that Japan stood ready to intervene if speculative moves persisted. We have consistently pointed to the Japanese trilemma with rising inflation, very large debt-to-GDP and the need to raise interest rates whilst maintaining a competitive currency for export business.

The yen carry trade is important, and, as we saw in the summer of 2024, any breakdown in this dynamic could trigger market volatility. A carry trade involves borrowing in a currency with very low interest rates and investing the proceeds in a currency or asset offering higher returns, allowing the investor to earn the difference between the two rates. The strategy depends heavily on stable exchange rates because if the funding currency (like the yen) suddenly strengthens, the cost of repaying the borrowed amount rises and can wipe out profits or create large losses. For this reason, carry trades can quietly support market liquidity during calm periods but become a source of rapid, sometimes violent, market volatility when they unwind, as investors rush to close positions at the same time.

China’s markets were firm in December, with the Shanghai Composite Index rising about 1.4% for the month, as renewed growth signals and policy support helped sustain investor confidence. Trading was steady but cautious, with the index hovering near 3,900 as investors weighed supportive government measures against lingering concerns over weak domestic demand and ongoing property‑sector stress and associated debt. Despite periodic dips linked to softer economic data, Chinese equities continued to reflect the strong momentum built over 2025, ending the year up roughly 18%—their best annual performance since 2019.

Geopolitical tensions such as trade tariffs and disputes, military conflicts in Ukraine and beyond, sanctions, and diplomatic standoffs unsettle financial markets by increasing uncertainty and disrupting global trade and investment flows. When risks rise, investors often shift away from equities and other risk‑sensitive assets and move toward safe‑haven assets like gold, government bonds, or the U.S. dollar. These tensions can also strain supply chains, drive volatility in key commodities such as oil, and weaken corporate earnings outlooks as businesses face higher costs or reduced demand. 2025 brought its fair share of global tensions – with expectations for further geopolitical turbulence on the radar for 2026, our Risk First approach to investment management is increasingly essential.

Alpha Beta portfolios delivered a strong year in 2025, achieving positive absolute returns and outperforming their respective comparators in relative terms. Risk corridors remained well‑controlled throughout the year, allowing the portfolios to capture upside opportunities while maintaining disciplined exposure during periods of volatility. Performance contributions were broad‑based, reflecting effective asset allocation, prudent risk management, and a favourable backdrop across several key market sectors. As we look ahead to 2026, we remain vigilant given the evolving macroeconomic and geopolitical environment, yet we are optimistic about the opportunities it presents. Our focus is on sustaining this positive trajectory and continuing to deliver value for investors and their advisers, with a commitment to transparency, consistency, and long‑term portfolio resilience.

Written by the Alpha Beta Partners Investment Team.

All sources Bloomberg unless otherwise stated.