Latest investment update

Stock markets ended the year with an eighth consecutive month of positive gains, closing out 2025 at near all-time highs. Just like much of last year, supportive economic data pushed equities higher and paints a positive picture coming into 2026.  

Easing inflation, healthy (albeit softening) jobs markets and positive economic growth allowed central banks on either side of the Atlantic to cut interest rates in December. And while we’re not completely out of the woods just yet with central banks battling to tame rising prices, inflation is likely to remain sticky going forward. However, we don’t anticipate the kind of reacceleration that would put markets under pressure.

While stock markets finished December in positive territory, fears of a bubble surrounding artificial intelligence (AI) raised its head again spurring another momentary blip in the road.

Joe Aylott, Multi-Asset Strategist at Coutts, the bank behind NatWest Invest, said: “It was a remarkable year for investors, with December being a good example of 2025’s story. Although there will be winners and losers from AI, and we saw that in December, we expect the pace of innovation to remain a tailwind for markets. Outside of AI, global economic growth remains resilient, and the supportive policy stance should help that continue in 2026.

Both the US Federal Reserve (Fed) and Bank of England (BoE) cut interest rates in December by 0.25%. 

The BoE’s decision to lower rates to 3.75% followed the third month in a row that inflation has fallen. Prices rose by 3.2% for the year to November, down from 3.6% the month before. Although inflation remains above the central bank’s 2% target, BoE governor Andrew Bailey said during the announcement that the future path of rising prices should be less of a threat on the economy. 

The Fed’s decision to cut interest rates marks the third cut this year. However, the roadmap for further rate cuts is a little less clear. Although US inflation fell to 2.7% in November, the labour market continues to soften with unemployment rising to 4.6% – a four-year high. The US economy, however, grew at an annual rate of 4.3% from July to September, creating a healthy environment for stocks. 

Fed Chair Jerome Powell’s term ends in May, and his successor will be announced in January. Whoever fills his shoes will play a big role in influencing how quickly or slowly future rate cuts will be rolled out. 

Despite the volatility throughout 2025, including April’s tariff announcements that caused markets to fall by more than 10%, investors managed to shrug off the uncertainty and focus on the fundamentals. 

Stable jobs markets, healthy consumer spending and strong company earnings helped bolster stock markets to fresh all-time highs towards the end of the year. Increased spending on AI and the potential benefits the technology could provide to businesses acted as a tailwind for stock markets. However, fears that the AI story was being overplayed did cause some volatility before fundamentals eased investors’ fears. 

It was also a good year for government bonds as key central banks resumed their interest rate cutting cycles meaning yields fell (prices rose). 

As we start 2026, the experts at Coutts maintain the same investment strategy they ended 2025 with, favouring stocks over bonds. However, volatility could make an appearance throughout this year so diversification will play an important role within our funds which they believe bonds could provide. 

Here you’ll find our previous investment market updates.