Farewell 2025, Hello 2026

Farewell 2025, Hello 2026

As we turn the page on 2025, it is a useful time to step back and reflect on what shaped markets over the year just passed. In this article, I review the key themes that influenced global equities, interest rates, commodities, and currencies, highlighting where investors were rewarded, where conditions became more challenging, and what these developments may mean as we look ahead.

The dominance of the Magnificent Seven

The Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla), which rose by an average 111 per cent over calendar year 2023, continued its strong upward trajectory, increasing a further 63 per cent, on average, over calendar 2024.

In the 12 months to December 2025, the market was a little more discerning, and saw an average increase of 23 per cent, with Amazon (+5 per cent), Meta (+10 per cent), and Apple (+12 per cent) and under-performing their peers. “AI” is on everyone’s lips, and time will show the ultimate winners and losers.

In short, the average “Magificent Seven” company has turned $1.00 into $4.25 in the past three years. That is a compound annual return for the “average” Magnficent Seven company of 62 per cent over three years. The Magnificent Seven now have a combined market capitalisation of A$32 trillion, or 10.7 times the entire market capitalisation of the Australian All Ordinaries Index (A$3.0 trillion), which comprises our top 500 companies. The question remains; can these extraordinary returns be sustained?

Global equity markets: A resilient year

Share markets mostly delivered investors an excellent year of returns despite the political and macro challenges that ensued – including wars, tariff announcements, slower economic growth from cost-of-living issues and increasing government indebtedness and reduced social cohesion. Returns were uneven with some markets doing well in the December 2025 half-year (Japanese Nikkei 225 +24.3 per cent) and other markets doing relatively poorly (Indian Sensex up 1.9 per cent and the German DAX 30 up 2.4 per cent).

As highlighted in Table 1 below, for the year to December 2025, the Australian All Ordinaries Index was up 7.1 per cent, excluding dividends, for an average year. The Hong Kong Hang Seng Index and the Japanese Nikkei 225 were the star performers, up 27.8 per cent and 26.2 per cent, respectively. It is worth noting it has taken the Japanese market over 35 years to convincingly break its last high set in late-1989.

Other highlights for 2025 included the German DAX 30 (+23.0 per cent), the UK FTSE 100 Index (+21.5 per cent), the U.S. technology heavy NASDAQ Index (+20.4 per cent) and the Chinese Shanghai Composite Index (+18.4 per cent), which hit its highest level in over a decade.

Table 1. Indices

Interest rates and bond markets

Whilst the downward trajectory of the U.S. annual rate of inflation has not eventuated as anticipated, the U.S. Federal Reserve has now cut the U.S. cash rate on six occasions since September 2024 from 5.50 per cent to 3.75 per cent. For a deeper dive into the growing trend of rate cuts across the U.S. and other western economies, please refer to my earlier blog post: Rates Reset Across the West. In summary, cash rates across six developed English-speaking economies have been cut by 2.0 per cent on average from 5.0 per cent to 3.0 per cent.

As seen in Table 2 – Whilst U.S. ten-year bond yields have declined over 2025 from 4.57 per cent to 4.18 per cent, the market appears concerned with the announcement regarding the successor of the U.S. Federal Reserve Governor, Jerome Powell. Also given the cost-of-living pressures, the November 2026 mid-term Congressional elections point to some interesting results.

Meanwhile, the German ten-year bonds sold off to 2.86 per cent, whilst the Japanese ten-year bonds finished 2025 at 2.08 per cent. After experiencing a serious bout of deflation and close to nil interest rates over the 2016-2022 period, this is their highest yield in 27 years.

Table 2. Bonds

Commodities: Gold takes the lead

For the twelve months to December 2025, Gold rallied 64 per cent from US$2,693/oz to US$4,332/oz. And with the relatively weak Australian Dollar, the Aussie producers are enjoying a phenomenal gold price of A$6,500/oz. Given gold can be seen as a geopolitical hedge, we believe the strongly rising gold price is correlated to a loss in confidence towards governments.

Bitcoin recorded large volatility in 2025 trading between US$76,000 and a record high of US$125,000 and closed the year at US$87,720.

With the Chinese residential property sector crisis, including many property developers entering administration, it was surprising to see iron-ore finishing the year at US$107.13/tonne. With some new significant iron-ore projects coming on stream over the foreseeable future, it is possible the iron-ore price will come under pressure, and the Australian Treasury is targeting US$60-US$83 per tonne by late-2026.

Copper enjoyed a wonderful 41 per cent rally over 2025, from US$4.02/lb. to US$5.69/lb.

Oil was subdued, down 15 per cent from US$71.72/bbl to US$60.91/bbl.

Table 3. Commodities

Currencies and the Australian Outlook

On the currency front the A$ finished the calendar year just under US$0.67 and ended 2025 steady against the British Pound at A$2.02/GBP. Whilst Europe, Canada and New Zealand have cut their cash rate on eight occasions each over the past 18 months, to 2.15 per cent, 2.25 per cent and 2.25 per cent, respectively, the Reserve Bank of Australia (RBA) is fighting a sticky rate of inflation currently at around 3.8 per cent. They have cut the RBA cash rate on three occasions between February and August 2025 from 4.35 per cent to 3.60 per cent. Australia continues to enjoy a relatively low unemployment rate and the very solid commodity prices.

That said, our negative real gross domestic product (GDP) per capita, appalling productivity growth, record government expenditure to GDP ratio and the cost-of-living issues associated with the prices of energy, housing and rentals does not bode well if, and when, external economic pressures and weaker commodity prices come to bare.

Table 4. Currencies

In closing, 2025 was a reminder that markets can remain resilient even amid uncertainty, but also that conditions rarely stay the same for long. While some areas delivered strong performance, returns were uneven and success increasingly depended on being selective. As we move into the new year, the focus shifts from simply riding momentum to understanding risk, maintaining diversification and building portfolios that are resilient across a range of outcomes.

MORE BY DavidINVEST WITH MONTGOMERY

Chief Executive Officer of Montgomery Investment Management, David Buckland has over 40 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.