Crystal ball not required
The Christmas party season is now in full swing and yuletide newsletters are dropping into my inbox with summaries of 2025 and an outlook for the year to come. I always read these with interest yet it is fair to say that forecasting is often more art than science. It is human nature to look for patterns in the world around us and seek certainty in our world. Financial analysts are employed by most firms to make sense of the mountains of data and make predictions for what lies ahead.
Most agree that 2025 exceeded investors` expectations with the UK stock market beating the US equity market and that has not happened in a long time ( I am not counting 2022 when it was just less bad). The 2025 crown goes to European equities, but how many predicted that ?
The year started with talk of a tariff driven recession, further interest cuts and a persistent dollar. Whilst Tariffs dominated the news-flow and moved the markets over the spring and summer, the much heralded recession with stagflation never materialised. Indeed, the tariff hit has been smaller than first feared and is currently delivering a monthly revenue of $34 billion to US federal funds. Global growth has indeed slowed but remained positive in the US. In this fast moving world of 24 hour news, events can rapidly overtake any assumptions made at a single point in time. So predications made in good faith with due diligence can still fall short when new factors appear.
One of our portfolio managers at 7IM offers their readers a friendly round of stock predictions each year on the UK FTSE 100 index. It seems that no-one picked Fresnillo back in January 2025 but this silver producer is riding high and is likely to be the winner when the market closes at the end of December. However, a number chose WPP which is likely to collect the wooden spoon. Google Ads and AI are eating the ad-man’s lunch these days.
Another one of our portfolio managers, at Portfoliometrix, treat forecasts as possibilities and not promises. Portfolios should be built to cope with a range of outcomes and consider how different asset classes perform in different markets. This has always been our approach too, to consider what the worst outcome could be and whether the risk is worth taking in the current conditions. Dialling up and down maybe but remaining invested.
Investment is always a medium to long term endeavour and not predicated on a 12 month period. Enduring themes often take many years to evolve and require patience to deliver results. Success for most clients does not require one to pick the winning stock but rather to be more right than wrong across a diversified set of portfolios. Above all it requires one to remain invested for the duration and not let our emotions drive rational decision making. Rather reassuringly, the data shows that the longer the investment time horizon then the lower the possibility of incurring negative returns.
For those of you interested in the prospects for the year ahead, many of the trends from 2025 will continue into 2026 and the largest of these is Artificial Intelligence. Potentially some of the fiscal uncertainties in the UK and US are now revealed to show inflation remaining sticky and growth below target. The world remains an uncertain place (as recent tragic events have confirmed), so we believe that investors will continue to be rewarded for holding risk assets in 2026. The recent company earnings results for Q4 were largely positive and supportive of recent rises across equity markets. Those same markets have unsurprisingly paused for breath so there may not be a Santa rally in the remaining weeks of 2025. Some tech company valuations are elevated but many commentators see economic activity broadening across other sectors and geographies which would be a healthy outcome, especially if accompanied by an AI inspired productivity boost. However, downside risks are ever present so we could see falters in 2006 as we did this last year.
Hopefully you will not be short of suitable reading at home but do let us know if you would like to read any of the commentaries provided by the investment managers who manage your own portfolios, and we can send those over.
We wish you and your families a very happy Christmas and a prosperous New Year.