After a challenging start, attractive returns close out 2025
Market update
As we turn the page to a new year, optimism has gradually returned to the financial markets after a year defined by geopolitical uncertainty, market turbulence and the longest US federal government shutdown in history.
The renewed optimism is largely driven by the US Federal Reserve (Fed)'s decision earlier this week to lower its key interest rate, with further cuts expected in 2026. The new trade agreement between the US and China is also good news – both for global trade and growth prospects. Ultimately, this benefits your pension savings too.
By the end of November, a typical Velliv customer with medium risk and 15 years to retirement had achieved returns of between 8.9 and 9.1 per cent, which means that returns remain solidly positioned at the favourable end of the market.
Expected rate cuts, AI scepticism and positive sentiment in Europe
After a rocky start to the year, US equities have shown strong performance since spring. The 35-day federal government shutdown caused significant uncertainty, but with the reopening, we can once again access data on the state of the US economy. As expected, a trade agreement between the US and China was reached, and the new tariff structure benefits both economies. With the new agreement, the US will reduce tariffs on a range of Chinese goods, while China will reduce tariffs on several American products and ease some of its export control.
In November, expectations shifted considerably over whether the Fed would move to cut interest rates. That decision came Wednesday, fulfilling market expectations and sparking hopes of further cuts in 2026.
Towards the end of the year, doubts emerged about whether the US stock market was losing momentum. We have seen significant market fluctuations driven by investor uncertainty over whether AI developments – and companies' limited ability to capitalise on them – justify today's high valuations. Concerns have also surfaced about whether AI-heavy firms can maintain their high pricing, even in the face of strong earnings. However, by mid-December, the market appears to be stabilising, and the risk appetite seems to be returning – a trend likely to be reinforced by the Fed's more accommocative stance.
On this side of the Atlantic, the overall picture is positive, and we are seeing a growing investment appetite in Germany that could spill over to the rest of Europe.
Expectations for 2026
Although stock prices, particularly in the tech industry, are currently high, Velliv still expects favourable market conditions going into 2026. This outlook is supported by:
- Continued positive global economic outlook with stable growth
- Sustained strong corporate earnings worldwide
- Interest rate cuts in the US, which historically supports stock markets
- Growing investment appetite in urope, likely to boost broader markets
Currently, we see no signs of a global recession. Several factors suggest that stock markets could maintain their positive trajectory into 2026. That said, it is clear that valuations, especially in the US, appear expensive, and we are mindful that parts of the market may face a correction during 2026.
