Well, it’s been quite a year. Let’s remind ourselves where we were back in April 2025, as we were in the full throes of President Trump and Tariff-gate. Markets in the US dropped by around 15% in a matter of days as the US President fired the opening shots to start a trade war. It turns out, as he backtracked over the following weeks, that he had mostly been firing blanks.
His so-called ‘Art of the Deal’, characterised by making exorbitant demands whilst having a planned fallback position, has had some merits, however. This is evidenced by the quarterly Tariff revenues to the US Treasury trebling to around £30bn per month compared to around $10bn per month under the Biden administration. Of course, we must remember that it is US end-consumers who are effectively paying these extra taxes.
The US Supreme Court is yet to rule on whether, by imposing these tariffs on an ‘emergency’ basis, the President has overreached his legal powers; however, we will know more in the coming days.
But going back to those crazy days in April, who would have predicted that markets would finish the year as they have?
We have again seen solid returns across various asset classes over the last quarter of 2025. Although equity markets fell in November, largely driven by concerns over whether technology and Artificial Intelligence (AI) companies are worth their high stock prices, markets rebounded strongly in December.
Over the quarter, performance was comfortably positive, as markets benefited from a traditional “Santa Rally” toward the end of the year despite continuing geopolitical tensions, trade policy developments and monetary policy uncertainty.
An impressive last quarter – Japan continues to shine, US lags
Japanese equities continued their impressive year, returning 12% in the last quarter and finishing as the top-performing region in 2025, with a total return of 28%. Equity markets performed well across the board, with the US perhaps running a little out of steam, relative to its peers at least, as the year drew to a close.
| Equity Region (Index) | Performance over the last 3 months | Performance 2025 whole year |
|---|---|---|
| US (S&P 500) | 2.5% | 16.6% |
| UK (FTSE-100) | 6.2% | 21.5% |
| Japan (Nikkei 225) | 12.0% | 28.1% |
| Europe (STOXX50) | 4.8% | 19.0% |
To 31st December 2025 – Source: Yahoo Finance
UK stocks also delivered a positive return (+6,2% over the quarter) as the Bank of England (BoE) delivered a further 0.25% cut to interest rates in December, helped by inflation edging down a little more than expected. It was again a very close call with the bank’s Governor Andrew Bailey casting the decisive vote in a narrow 5-4 vote split. Any further cuts are likely to be more gradual as the Bank of England approaches what it considers a ‘neutral’ or ‘normal’ rate consistent with long-term stability going forward.
More broadly, European equities also generated positive returns (+4.8% over the quarter) while the US markets continued to push new highs. However, the gains in US equities were more modest, at 2.5% over the same period, reinforcing concerns that valuations, particularly within technology and AI-related stocks, appear stretched at current levels. That said, 80% of US companies that reported third-quarter earnings beat expectations. This included Nvidia, now the world’s highest valued company, whose sales grew by 62% as profit exceeded expectations to reach $31.9bn.
Looking at 2025 as a whole, global equities have performed very well despite Trump tariff machinations and global geopolitical tensions that have punctuated the year.
Summary
Despite geopolitical and Central Bank headwinds, returns across asset classes have been very positive both over the last quarter and 2025 as a whole. It has again been reassuring to see that diversification has helped investors.
Looking ahead, there are several factors worth highlighting. Valuations in the US remain elevated, although it is conceivable that AI and Tech share prices could push on and continue to rise. The latest S&P Global US manufacturing release showed US manufacturers ramped up production again in December while new orders fell. The Chief Business Economist at S&P Global Market Intelligence described the situation as something of a “Wile E. Coyote scenario” where “factories are continuing to produce goods despite suffering a drop in orders.”
The gap between production growth and the decline in new orders is now the widest it’s been since the global financial crisis. Something we remain wary of, especially in relation to US allocation within portfolios.
While potential macroeconomic volatility and ongoing geopolitical uncertainty are issues to be mindful of, this can be mitigated to a degree by effective diversification. The ability to manage risk by adopting a broad-based approach will therefore continue to play an important role.
Legal & Medical Portfolio Positioning
Given the improved market sentiment as we reached the end of 2025, the Risk Barometer signalled a shift into the Green zone, indicating that the portfolios should be rebalanced more positively to reflect a higher level of equity exposure within their permitted range.
After the previous realignment in September 2025, the portfolios had been positioned at the bottom of their Amber range, reflecting a degree of caution. This change to the barometer meant that it was agreed to increase equity allocations to the bottom of their Green range. This adjustment allows for greater participation in equity upside without increasing exposure to the US, while avoiding a move to the upper limits of the permitted risk range.
For the reasons highlighted in the equity commentary above regarding the elevated valuations in some US companies, we remain modestly underweight in US stocks, with a specific underweight to technology stocks.
Our portfolios continue to maintain a well-diversified mix of asset classes, reflecting a broad-based investment approach to smooth the investor journey. While downside risks inevitably remain, our portfolios are constructed to be resilient in the face of volatility while still capturing opportunities for upside growth.
- Equity holdings in the portfolios are designed to deliver long-term growth.
- Fixed income holdings focus on high-quality businesses that are close to maturity, offering an attractive level of return and experiencing a lower level of risk.
- Alternative assets, such as infrastructure and commodities, ie, Gold and Silver, provide additional diversification benefits through the exposure to steady long-term cash flows, which reflect the effects of economic growth and inflation.
If you would like to discuss your portfolio or any aspects covered in this article, please do get in touch. This is not personal advice. If you are unsure of the suitability of an investment for your circumstances, please seek specialist advice.