Where we stand

The US economy is facing challenges, including softer job growth, the impact of tariffs, and policy uncertainty, which are weighing on consumer spending. US consumers are responsible for about 70% of US gross domestic product growth. This fundamental backdrop, together with the growing confidence that any tariff-induced inflation spike will remain transitory, will potentially allow the Fed to respond with several rate cuts into year end. As the yield advantage shrinks, the USD would thus be likely to resume its downward trend again. Investors can look beyond the US to stronger markets in Europe, Japan, China, and India, and to assets such as gold, global equities, and bonds paying regular coupons.

In Europe, the outlook is more positive, driven by lower inflation, lower interest rates, and upcoming fiscal stimulus. The European Central Bank is well positioned with a range of tools at its disposal to support the economy. China, meanwhile, keeps on struggling with domestic vulnerabilities and a reliance on exports, which are fueling global deflation.

Find out more about the current investment environment in our Market Outlook Year-End 2025. 

What to focus on

Despite cyclical clouds on the horizon, our investment stance remains constructive. Momentum in global stock markets is strong, and now is therefore not the time to sit on the sidelines. Shifting gears calls for active participation, not hesitation. Going forward, our analysts consider treating any episode of weak macroeconomic data that triggers a broader sell-off as an entry point rather than an exit signal. Ultimately, a diversified portfolio that takes into account the complexity of the global economic outlook is likely to be the best approach. Below we take a look at individual asset classes.

Equities

With the US as the traditional growth driver of the world economy showing some cracks, it is paramount for investors to consider allocating funds to other, more promising, countries and regions. Europe, Japan, China, and India stand out in that respect.

Fixed income

The current fixed income backdrop appears favourable due to the Fed rate cuts and less policy volatility. Amid narrow spreads and low expected default rates, our analysts’ investment preference is for bonds with solid income streams.

Currencies

According to our currency experts, beneficiaries of a weakening USD are, in the order of likelihood, the EUR, the JPY (due to further policy normalisation), and, potentially, the CHF, despite the last of these being hampered by the US tariff blow. The GBP may also strengthen, driven by its high carry vs European peers.

Commodities

Commodity markets are also worth watching over the coming months, with gold potentially standing out as a bright spot. Driven by safe-haven demand, central-bank buying, and a weaker USD, gold is expected to reach new highs, potentially exceeding USD 3,500 per ounce into year end, according to our analysts. Other commodities, such as oil, are experiencing a period of abundance and depressed prices, characterised by a peak in both US production and Chinese consumption.

Alternative investments

The private equity (PE) market offers access to unlisted companies. Market volatility often results in mispricing, giving top-tier PE fund managers the opportunity to select the right businesses to support through challenging cycles, which then enables them to generate significant capital gains when they exit the investment.

European direct lending may offer an appealing spread premium over liquid credit, generating decent income and helping to diversify USD exposure. Our specialists remain constructive on hedge funds amid current macroeconomic and political uncertainty. Multi-manager platforms and properly risk-managed fixed income relative value managers can help stabilise portfolios, while event-driven and credit strategies continue to uncover compelling, complex situations offering attractive returns. However, returns can vary significantly within a strategy, making it critical to partner with top-tier managers who possess experience, depth, and expertise.

Digital assets

Digital assets have exhibited strong growth over recent months, driven by increased inflows from exchange-traded fund purchases and a considerable rise in tokenisation applications, highlighting their disruptive potential and ongoing institutional adoption. (Note: Investments in digital assets are exposed to elevated risk of fraud and loss and to price fluctuations.)

Wild cards

The greatest risks to our outlook into year end are potential policy missteps, geopolitical events, systemic issues around shadow banking, a credit crunch, and infrastructure blackouts. However, with the right strategy and a keen eye on market developments, investors can navigate these challenges and capitalise on emerging opportunities.