Global markets in 2025 ultimately delivered strong, broad-based gains across asset classes, but the path was volatile as shifting economic data, tariff policy, and geopolitical narratives repeatedly upended consensus views.

Robust investment in tech infrastructure, particularly related to AI and data center buildouts, helped push major equity indices to new highs. U.S. growth was uneven early in the year as tariff-related inventory stockpiling distorted activity ahead of the April 2 Liberation Day, but momentum improved meaningfully thereafter amid declining imports and resilient consumer spending. The policy-driven volatility masked the underlying trend of easing inflation as growth picked up. Notably, aggregate consumer spending gains were increasingly concentrated among higher-income households, as elevated prices and borrowing costs pressured discretionary spending for lower-income consumers.

As inflation moderated and labor market momentum cooled, the Federal Reserve resumed rate cuts following a nine-month pause. The policy pivot drove a pronounced steepening of the U.S. yield curve, as short-term yields declined in lockstep with the fed funds rate, while longer-dated yields remained anchored by ongoing deficit concerns and resilient inflation. Concurrently, the U.S. Dollar Index logged its weakest calendar year performance since 2017. The sell-off was driven not just by narrowing interest rate differentials, but also by the broader geopolitical fragmentation triggered by the tariff measures, which prompted a rotation into foreign assets and precious metals as investors diversified away from U.S. trade policy risks. By year-end, markets showed signs of returning to a more familiar pre-pandemic environment, though underlying risks persist.

Credit markets reinforced this broader picture of economic resilience. Corporate credit spreads across both investment grade and high yield bond markets finished the year modestly lower, remaining near historically tight levels. This stability reflected solid corporate fundamentals and a constructive technical backdrop. While valuation upside from further spread compression appeared limited, elevated yields continued to offer attractive income and a partial buffer against rate and equity volatility.

Entering 2026, we believe it’s important to focus on disciplined execution and long-term decision-making. We believe the fixed income opportunity set is likely to be defined less by broad valuation shifts and more by dispersion across issuers, structures, and markets. With spreads tight and yields elevated, return potential may rest predominantly on income generation and careful credit selection. Investors will need to navigate market trends, credit conditions, and global economic influences to position themselves effectively amid this dynamic and uncertain landscape.

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