We’re sure many of you have been away over the December holiday period, so we wanted to provide a brief update on key developments in financial markets since mid-December 2025.
Since mid-December 2025, financial markets have largely extended the positive trends of 2025, driven by AI enthusiasm and expectations of interest rate cuts. Key developments include:
US Financial Markets
- Continued Gains: US stocks ended 2025 with stellar, double-digit gains for the third straight year, with the S&P 500 up over 16% and the Nasdaq climbing around 19%. These gains were largely driven by strong corporate earnings and investor enthusiasm for AI-oriented tech stocks like Nvidia, Alphabet, and Microsoft.
- Federal Reserve (Fed) Policy: The Fed has been cutting interest rates, with the third cut in the current cycle occurring in December 2025. This easing monetary policy has been a significant tailwind for the markets.
- Economic Indicators: The US economy showed resilience in Q3 2025, with above-average GDP growth. However, there are signs of a softening labour market and persistent inflation in certain areas like rents and food, which led to a contentious vote at the December Fed meeting.
- Tariff Uncertainty: The impact of US tariffs, which caused volatility earlier in 2025, has largely faded, though trade policy uncertainty remains a key risk for 2026.
South African Financial Markets
- Strong Performance and Rand Resilience: South African equities delivered strong returns in 2025, and the rand has shown surprising strength against the US dollar. This has been supported by strong global commodity prices (especially precious metals), an S&P Global rating upgrade, and progress on local structural reforms.
- Interest Rate Outlook: Lower inflation expectations (moving toward a new 3% target) have paved the way for further interest rate cuts by the South African Reserve Bank (SARB) in 2026, which is expected to support domestic demand.
- Mixed Economic Data: Despite market optimism, recent data shows the manufacturing sector experienced a slump in December 2025. The economy continues to face challenges like high unemployment and infrastructure issues in logistics, although progress is being made on improving port operations and electricity availability.
- Foreign Investment: There has been a significant increase in foreign investor appetite for South African bonds in early January 2026.
Global Financial Markets
- “Everything Rally” in 2025: 2025 was a year of broad-based positive returns across major asset classes, a phenomenon termed an “everything rally”. Emerging markets, in particular, were the top-performing equity market in dollar terms.
- Diverging Growth and Weakening US Dollar: Global growth has broadened out beyond the US, leading to a significant weakening of the US dollar against other major currencies like the Euro and Pound.
- AI as a Key Driver: AI continues to be a primary focus and driver of global investment, with massive capital spending by major tech firms expected to continue into 2026.
- Ongoing Risks: Trade tensions, geopolitical conflicts, and concerns about high valuations (particularly in the AI sector) remain potential sources of volatility for 2026.
