Three words defined the investment landscape in 2025: tariffs, technology, tension. Yet for discerning investors one word stood above all – resilience.

Despite turbulence, global markets delivered positive returns supported by steady economic growth, accommodative fiscal policy and robust corporate earnings. A powerful tailwind from the accelerating artificial intelligence (AI) sector also played a dramatic role.

‘Liberation Day’ in the US – 2 April – was a major disruptor to markets, marking the broadest US policy shift in decades. President Donald Trump announced sweeping tariffs on all imports into the US, causing major economic uncertainty (see chart below) and immediate falls in stock markets that had peaked in mid-February.

Yet economies and companies worldwide, particularly in the US, demonstrated a remarkable propensity to adapt.

Aided by a number of deals between the US and its trading partners, stocks rebounded quickly. They then continued to perform well despite ongoing tariff uncertainty – testament to the steely resilience of corporate America. S&P 500 earnings per share (EPS) grew 15% year-on-year in the third quarter of 2025. 

Uncertainty did not just come from tariffs. There was significant geopolitical tension as well, with major conflicts in the Middle East and Ukraine. Despite the significant human impact of these conflicts, markets showed robustness and were largely unmoved. 

The two charts below illustrate the 12-month and 10-year performance of S&P 500 companies across various price-to-earnings (P/E) ratios – a key valuation metric. They show a much stronger relationship over the long term (the chart on the right) with valuations clearly moderating returns. 

The past year underscores this point. At the start of 2025, the S&P 500 was trading at a forward P/E ratio of around 22, above its average of 17. Despite this premium, the index still delivered returns of around 15% by the end of September, driven by exceptional earnings.

The lessons of 2025 reaffirm a strong principle of ours: sound portfolio management requires a holistic view, not a fixation on a single metric.

We examine a wide range of factors when making investment decisions including economic growth, fiscal policy, jobs numbers and company performance. In 2025, all these elements continued to paint a positive picture of stock market performance over the medium term and, as a result, we remained overweight equities throughout the year.  

External turbulence and elevated valuations demand vigilance, but they do not preclude opportunity when fundamentals remain strong.

While we remain alert to potential shocks, the outlook for 2026 and beyond is broadly constructive. Economic resilience, supportive policy and structural innovation should underpin healthy corporate earnings – not just in the year ahead but over the coming decade.

1) Alternative diversifiers are essential

Traditional diversification is under pressure. Persistent inflation has increased the correlation between equities and bonds (see chart), reducing bonds’ defensive qualities. This could very well continue given tariff frictions and robust wage growth across developed markets.

One way to potentially address this in portfolios is to invest in so-called ‘liquid alternatives’.

These strategies adopt a broader range of techniques than traditional financial assets, such as short-selling, which aims to benefit when an asset's price drops. They can also use methods with non-linear payoffs that may limit losses in exchange for giving up some potential gains.

Though not suitable for all clients, we feel liquid alternatives will remain an appropriate way to provide further diversification in 2026.

Two of the most important factors that influence investment returns are economic growth, and how easily that growth translates into company earnings.

Economic expansion depends on demographics and productivity, while its influence on company earnings centres on institutional depth – the rule of law, enforcement of contracts, stable policymaking and corporate governance.

Looking at the US through this lens, its demographic outlook, productivity potential and institutional depth continue to outpace peers. UN figures show the projected US age dependency ratio – the number of people below and above working age as a percentage of the working population – to be 75% by 2100 (the lower the percentage the better for the economy). That’s compared to over 80% for Germany and 114% for China.

The OECD, meanwhile, found that US labour productivity (GDP per hour worked) increased by 1.6% in 2023, while the average across all its countries was 0.6%.

US productivity growth is also likely to accelerate faster than other developed markets because of the country’s flexible labour markets and strong track record of adopting new technology.

Innovation paves the way

Historically, for individuals seeking to maintain and grow their wealth, private markets presented challenges. Extended capital deployment timelines, illiquidity and large minimum investments all presented barriers to entry.

But today, innovation is reshaping the landscape.

So-called evergreen funds, which ease some of the challenges, are increasing in popularity. They allow investors to access a fully diversified portfolio of private assets significantly faster than more traditional, ‘closed-end’ structures. Under normal market conditions, an investor can withdraw part of their investment in a few months, and these funds tend to have lower minimum investment sizes than their traditional counterparts.

For eligible investors, the message is clear: private equity and private credit should not be viewed as replacements for traditional investing, but as complementary components of a well-constructed portfolio. They represent a strategic evolution in wealth management.

As we look ahead, three scenarios stand out: our base case of steady growth, an upside driven by AI-led productivity and a downside shaped by lingering risks. Here are our views on what wealthy investors should watch out for.

Our base case for 2026 is reassuringly steady. We expect ongoing economic resilience and corporate earnings growth which should continue to underpin solid equity market performance.

Consumers remain healthy, corporate balance sheets strong, and the US Federal Reserve (Fed) has started cutting interest rates – markets currently expect three more US cuts by the end of 2026.

Data from the last 50 years shows that US equity returns are historically very strong during Fed rate cutting cycles that coincide with economic growth (see chart below). The last 12 months have been another example of this.

The outlook could change of course, with various risks hovering over markets, but current fundamentals show a reasonably firm foundation for growth.

We may well be on the cusp of a defining moment for the global economy courtesy of AI – a monumental shift in productivity.

In 2025, AI excitement and infrastructure investment drove stellar returns. In 2026 and beyond, the real story could be AI-induced productivity gains as a key driver of economic growth, improved company performance and enhanced investment returns. 

Turbulence in markets is always something investors have to navigate. But while they have experienced their fair share of late, we feel many current key concerns may be overstated.

Here are some of those risks and our view on them.

1) Record highs – bubble or business as usual?

Several stock markets recently reached a succession of record highs, sparking concerns of a bubble which some feel could de-rail markets.

We disagree. Over the past decade (as at the end of August 2025), US equities returned 290%. More than three quarters of those returns came from growing corporate earnings and dividend payments, with only the remainder attributable to rising valuations. 

This underscores that fundamentals, not speculation, have been powering investment performance. And as long as that continues, we remain comfortable maintaining our exposure to equities.  

Our research spanning nearly a century shows markets have historically been at all-time highs about 20% of the time. Counter-intuitively, investment returns following those highs are often better than when markets weren’t breaking new ground (see chart below). This shows that all-time highs are typically indicative of strong underlying economies and positive earnings growth, not exuberance. 

2) Market concentration – magnificent or risky?

The so-called ‘Magnificent 7’ technology stocks in the US have a cumulative weight of around 35% of the S&P 500. Some commentators have speculated that these elevated levels of index concentration are a precursor to a market correction.

Again, we disagree.

Concentration risk matters if investors are over-exposed to a single source of revenue. But many of the ‘Magnificent 7’ are conglomerates, each housing a number of different revenue streams and subsidiaries. These include cloud services, online retail, social media apps, application stores and video streaming.

Conceptually, if each of these subsidiaries were independent, superficial index concentration would be materially lower as 20 or 30 companies, not seven, would comprise 35% of the S&P 500. However, an investor would still be exposed to the same underlying businesses.

Concentration risk is therefore less of a concern when supported by diverse sources of revenue.

3) Profitability under pressure

High valuations could necessitate strong profit margins. If those elevated margins revert to historical averages, earnings could shrink, making current equity prices harder to justify.

Companies have enjoyed decades of rising margins thanks to low interest rates, global supply chains and tech efficiencies. Some of those tailwinds are reversing – higher labour and energy costs, geopolitical tensions and elevated interest rates now pose challenges.

However, comparing today’s profit margins to historical averages is a fraught exercise. Structural economic shifts have migrated value from tangible assets, such as railroads and commodities, to intangible assets such as technology.

An example of the demise of tangible assets is oil, which was once the lifeblood of economic expansion but has seen its grip loosen dramatically over the past few decades. The chart below shows the steep rise of GDP generated over the years from the same, fixed quantity of energy produced.

Intangible assets, on the other hand, are the order of the day, and they can produce greater margin resilience because usually just a few firms dominate. For example, within social media, consumers typically value larger, active communities, which makes it likely that a small number of larger companies will prevail.

Generally, while we believe these risks are unlikely to escalate into significant challenges, we remain highly attuned to the potential impact they could have on markets. Our investment approach is built to navigate these scenarios, ensuring we can act decisively should any of these risks materialise.

It’s been a year of war, peace and tariffs.

We’ve seen global power struggles around trade, competition over new technologies, and changing populations all taking their toll.

These events typically create a challenging environment for the economy, and the ensuing uncertainty makes it difficult for investors and economists to gauge the future.

But despite all this, data shows that the economy and financial markets are holding firm.

This is likely because governments are now better at understanding their own strengths and weaknesses – making them quicker to respond and react to international developments.

However, there are of course limits to how well countries and economies can respond to geopolitics. The more extreme an event, the bigger the potential strain.

Should international tensions escalate, or if infrastructure were disrupted – as we saw with this year’s blackouts in Spain – we could eventually see an impact on the financial world. It would seem from this year, though, that it would take something pretty significant to shift the economic dial.

Conflict within the Middle East and Ukraine has showcased the evolution of modern-day war. Countries are now using cyberattacks, media influence and economic pressure to gain advantage.

Governments and global organisations are investing in better awareness, stronger defences and smarter planning.

We believe three key themes could emerge from current geopolitical tensions.

1. Alliances could change: International relationships are likely to continue to form, end or evolve as countries try to deal with the unpredictability of others.
2. Defence spending could increase further: Governments could spend more on military and security – Germany, for example, has allocated more funds to this after years of reduced spending.
3. Political challenges could deepen: Ongoing conflicts are unlikely to be resolved overnight, which creates significant challenges for those involved around the funding needed and their political relationships with allies.

It’s worth highlighting again that the global economy remained resilient in the face of many challenges throughout 2025. While we should stay alert to any potential geopolitical escalations in 2026, it’s likely that we will see the same resilience throughout next year.