What's been happening in markets?
2025 was a year of considerable volatility yet, over the full calendar year, some very good results were achieved. It was a disruptive year, one where no one really knew what Donald Trump might do next. More recently, the US intervention/invasion/abduction in Venezuela is stunning in so many respects and begs a dizzying array of questions (perhaps something we’ll explore later). Despite the uncertainty, financial markets have held up. Given what’s gone on, it’s surprising.
In 2025 the US economy grew 4% and, it has still quite the momentum behind it. The world economy grew by around 3% and here at home, we had a somewhat subdued annual economic growth rate of just 1.5% (thanks mostly to a strong last quarter). What now for 2026? Most agree US economic growth continues, but not as strong. Emerging Markets pick up, AI’s advance continues and health-related stocks/sectors begin to benefit. Economic growth in New Zealand improves and maybe, we finish 2026 closer to 3% than 1.5%. Of course, if our economy is growing, we are unlikely to see further significant interest rate cuts here. In the US it seems likely their cash rates continue to lower through 2026, as their economy slows.
The idea that US “Might is Right” is a concerning geopolitical shift, one potentially with much larger ramifications. In the short-term it could mean cheaper oil, and that typically pushes inflation lower as the price of transportation falls, which in turn could mean even lower interest rates, and that helps borrowers and spenders alike but ultimately that can be inflationary (if Central Banks are slow to react to changing conditions, as easy money means prices rise to meet the new demand and thus, inflation returns). Of course, any variable is possible when talking about the future.
Financial Markets are always uncertain in the short-term, hence we diversify and look for investments or strategies that have sustainable and or growing earnings and a strong business model. We build strategies with investments intended to be somewhat uncorrelated, as to be properly diversified. And of course, for some investors, low risk deposit types are to counterbalance the short-term volatility associated with riskier assets, and we might stagger durations. Even so, a prudent investor would likely remain still weighted to future growth.
2026 is ahead of us but really, we are looking for much longer-term results than just the next twelve months. Throughout short, medium and long-term periods we expect a constant cycling of risks. Indeed, risk is the constant. Right now, AI is the tail wind behind investment markets, changing business and indeed our everyday lives but is it now priced too high, is it a “bubble”?
We believe we are very much only at the beginning of the AI evolution. AI will continue to be transformative and while there is much talk of being in a bubble (some stocks look frothy), many businesses have an opportunity to transform their operations in ways never seen before.
For the moment at least, much of the infrastructure behind AI’s advance is through capital being injected by some of the world’s most valuable businesses (the like, of Meta, Amazon, Microsoft, Alphabet to name just a few). Unlike most bubbles of the past, it’s not being fueled by speculative debt funding. And anecdotally as a financial adviser who has had plenty of tips over the years (the guy at the party, or the uber/taxi driver who took you home - those sources of insight are a forerunner to the popping of bubbles), I’m not hearing about “sure bets” this time (yet) and so do feel, we are still some way from peak in this cycle. Granted, some stocks are near or at all time heights. But that’s normal too. Over my career, markets have always reached new all-time heights. I don’t believe new heights are going to stop anytime soon.
Observe three reasons to be mindful today and yet, still confident about the future…it’s not the markets, it’s the time.
There have been 44 new all-time highs since 1954… over 71 years. That implies that slightly less than every two years, the S&P500 reaches a new “All-time High”! Ok, that’s being a little creative with the data because we know with painful experience, markets can retrace their steps for extended periods… the late 60’s to the mid-eighties for example, not much fun! Or the decade of 2000 to 2010 – or the period 2007-2014 (GFC).
There are plenty of down times. Today it feels like we’re at the “all time” of ALL TIME highs… and of course, we are! Just like we were last time… and the time before that. And this time, it won’t be any different. As an expert in this field, we know that if we get the timing right, we are more “lucky” - than “learned”. But if we get the timing wrong, yet remain invested, we’ll likely be right long-term.
The views and opinions expressed in this article are intended to be of a general nature and do not constitute personalised advice for an individual client.
