Global stocks post third straight year of double-digit gains

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Global stock markets have shrugged off turmoil triggered by Donald Trump’s trade war and fears of a bubble in the artificial intelligence sector to post a third straight year of double-digit gains in 2025. 

Wall Street’s S&P 500 has risen 17 per cent, beating many analysts’ forecasts and hitting record highs in recent months, despite fears over the fallout from Trump’s sweeping “liberation day” tariffs in April. It was down 0.3 per cent on New Year’s Eve, while stocks in Europe and Asia also posted small declines.

The broad MSCI All Country World index, tracking large-cap stocks across developed and emerging markets, has risen more than 20 per cent this year. 

“This was an extremely strong year, stronger than we expected,” said Venu Krishna, head of US equities strategy at Barclays. “Despite all the policy uncertainty, including tariffs, broadly speaking the [US] economy and equity markets have been very resilient.” 

Wall Street’s gains this year have come despite an unpromising first few months.

In the early weeks of 2025, the release of a low-cost large language model by Chinese AI start-up DeepSeek stunned Silicon Valley and sent US tech stocks tumbling. Then in April, investors were caught off guard by the scale of Trump’s trade tariffs, triggering a major sell-off in stocks, bonds and the dollar.

But a raft of strong corporate earnings by US companies, and the prospect of the Federal Reserve resuming interest rate cuts, soon encouraged investors to pile back into the equity market and place big bets on the transformational potential of AI. Faster than expected US economic growth has also helped reassure investors.

“If you told me at the beginning of the year that we would have that rewiring of global trade, I would not have forecast that we would have such a strong equity year,” said Kasper Elmgreen, chief investment officer for equities and fixed income at Nordea Asset Management.

“But what we saw was a resilient economy and really, really strong corporate fundamentals,” he added.

However, the early wobbles in US stocks gave other regions a head start, and in many markets that outperformance continued. Indices in Hong Kong, Japan, the UK and Germany have all outpaced the S&P 500 this year, as has a broad MSCI gauge of emerging-market stocks.

After such big gains, some investors and analysts are warning over the longevity of the rally, which has been driven in large part by the performance of Silicon Valley’s tech giants. The bull market has left valuations well above their historical average and index returns increasingly dependent on the performance of just a small group of stocks.

“There is a risk of complacency when markets have been this strong,” said Simon Adler, head of value equities at Schroders. “We are now entering 2026 with areas of the market looking very, very fully valued. The risk of a drawdown has increased quite significantly.”

He pointed to the so-called Shiller cyclically adjusted price-to-earnings ratio of the US stock market, which is ending 2025 just shy of 40, an extremely high level relative to history.

The only time that the S&P 500 has had a higher ratio was just prior to the dotcom bubble bursting in the early 2000s. Starting from valuations at this level, Adler said, the market has never generated a return above inflation for investors. 

“It is very rare for the S&P 500 to clock in four consecutive years of double-digit returns,” said Elyas Galou, investment strategist at Bank of America. “It can happen — it’s just that the bar is very high. We’re starting from very high valuations,” he added.

Altaf Kassam, Europe head of investment strategy and research for State Street Investment Management, highlighted the risks from such a small number of stocks driving the rally.

The so-called Magnificent Seven tech giants alone account for about one-quarter of the MSCI World index of global developed-market stocks.

“It’s a rally where it feels like people are uncomfortably bullish,” he said. “Whenever you have concentration in names which have very similar business models, it is worrying . . . it makes the market more fragile.”

The market’s increasing concentration has prompted warnings over a dealmaking spree in the AI sector that has created a web of financial dependencies. ChatGPT maker OpenAI, for example, has taken shares in some of its infrastructure suppliers and received large investments from others.

“It’s like Jenga,” Kassam said. “If you pull out one key block, the whole thing could come down.”