The week that was …
Economic round-up
Minutes reveal Fed split
The minutes of the latest Federal Reserve meeting show the rate-setting committee deeply divided on the risks facing the US economy. Even those who supported the most recent cut noted “the decision was finely balanced or that they could have supported keeping the target range unchanged”. Read more from the Guardian here
US economy powers ahead
The US economy outpaced expectations in the three months to September, fuelled by stronger consumer spending and exports. It expanded at an annualised rate of 4.3% – its strongest level of growth in two years. Read more from the BBC here
UK consumer confidence low
In contrast, worries over the strength of the UK economy are holding back consumer spending, according to a study by accountancy multinational KPMG. It found particular reluctance to spend on eating out and big-ticket items such as cars and furniture. Read more from the Guardian here
UK manufacturing improves
The UK’s manufacturing sector grew at its fastest pace in 15 months over December, as the impact of Budget-related concerns and the cyber attack on Jaguar Land Rover faded. The S&P Global UK manufacturing PMI survey, which is watched closely by economists, showed a reading of 50.6 in December – up from 50.2 in November. Read more from the Independent here
Carbon border tax
The EU’s landmark carbon border tax came into effect at the start of this year, in the face of significant opposition from international trading partners. The tax covers six sectors – including steel, cement, aluminium and electricity – and is intended to prevent EU companies being undercut by cheaper, more heavily-polluting competition. Read more from the FT here
Memory costs drive up prices
Consumers should prepare for price rises on consumer electronics, including smartphones, computers and home appliances, manufacturers warn. AI demand is driving up the cost of memory chips used in electronics, which could increase costs by up to 20%. Read more from the FT here
Chinese imports could ease inflation – BoE
Cheap Chinese imports could bring down UK inflation, according to the Bank of England. It also noted that the UK was among the nations emerging as an alternative destination for Chinese goods as trade between the US and China decreases. Read more from the Guardian here
Markets round-up
Footsie hits 10,000 mark
The FTSE 100 briefly tipped over the symbolic 10,000 points mark for the first time, building on a strong year for the UK’s largecap index. It crossed the milestone early on the first trading day of 2026, having gained nearly 22% over 2025. Read more in ‘In focus’ below and from Reuters here
Dollar starts 2026 strongly …
The US dollar began 2026 with stronger trading, as investors look ahead to a critical week of economic data. The gains followed the currency’s sharpest annual decline since 2017, as it dropped more than 9% in 2025, driven by the narrowing interest-rate gap with other economies and persistent worries over US fiscal health. Read more from Reuters here
… as do main US indices
The Dow Jones and S&P 500 indices kicked off 2026 by snapping a four-day losing streak, fuelled by gains from global chipmakers. The Philadelphia SE Semiconductor index opened up 4%, with industrials and utilities also making gains. Read more from Reuters here
BYD overtakes Tesla
Chinese carmaker BYD has overtaken Elon Musk’s Tesla as the world’s biggest seller of electric vehicles. Tesla car sales dropped by nearly 9% in 2025 to 1.64 million vehicles, while BYD saw its sales rise by almost 28% last year to more than 2.25 million. Read more from the BBC here
“Market bubbles have arisen in all major historical transformations – and that could happen again. But those bubbles also grew for some time and only became obvious after they burst.
Selected equity and bond markets: 26/12/25 to 02/01/26
| Market | 26/12/25 (Close) |
02/01/26 (Close) |
Gain/loss |
|---|---|---|---|
| FTSE All-Share | 5317 | 5358 | +0.8% |
| S&P500 | 6942 | 6858 | -1.1% |
| MSCI World | 4458 | 4445 | -0.3% |
| CNBC Magnificent Seven | 430 | 420 | -2.3% |
| US 10-year treasury (yield) | 4.14% | 4.2% | |
| UK 10-year gilt (yield) | 4.49% | 4.54% |
Investment round-up
Janus Henderson takeover
Janus Henderson Group is to be acquired by billionaire Nelson Peltz’s Trian Fund Management and General Catalyst in a $7.4bn (£5.5bn) all-cash transaction. The bid is backed by the Qatar Investment Authority and Sun Hung Kai & Co, among others. The bid represents an 18% premium to the closing price of Janus Henderson shares on 24 October 2025.
EWIT galvanises investor support
The Baillie Gifford-run Edinburgh Worldwide investment trust has urged shareholders to vote at the trust’s upcoming general meeting on 20 January 2026, as activist hedge fund Saba Capital Management looks to remove the board of the trust.
Budget regrets
Nearly a quarter of UK adults made changes to their pensions and savings in the lead-up to the Autumn Budget, but a fifth of these now regret their actions, research from St James’s Place suggests. In particular, 19% of those who made changes to their pension now regret it.
UK investment platforms cut fees
Several UK investment platforms plan to cut fees in 2026 as part of a bid to attract customers ahead of an industry campaign and government overhaul of financial advice. Interactive Investor, the second-largest UK investment platform by users, will cut monthly fees from February on a range of Sipp, Isa and general investment products.
December’s top performers
Gold and Korea were the most popular investment themes in December, according to data from FE Analytics. Funds focusing on commodities, precious metals and gold garnered most investor interest, with YFS Charteris Gold and Precious Metals up 18.8%. It was followed by Jupiter Gold and Silver, WS Amati Strategic Metals and WS Ruffer Gold.
… and the week that will be
Economic data flow resumes
The first full week of the year will see a pick-up in economic releases, including a batch of labour market data from the US that may set the tone for interest rates. The ISM purchasing managers indices (PMIs) and Michigan consumer confidence survey will also give an idea on confidence. In Europe, meanwhile, the spotlight will be on inflation rates for the Eurozone and its largest economies. Read more from Tradingeconomics here
Venezuela impact
Analysts will be closely monitoring the situation in Venezuela, following the US intervention at the weekend. As the country with the largest proven oil reserves in the world, Venezuela is central to the oil trade and supply-side risks could have repercussions for crude oil prices. Bond market investors are betting on a rally in Venezuela’s defaulted debts on hopes that repayment might become more probable post-Maduro. Read more from the FT here
The week in numbers
UK house prices: Consensus expectations are for the Halifax house price index to grow by 0.1% over December versus 0% month on month, following a 0.7% year-on-year rise in November.
US employment: Consensus expectations are that US non-farm payrolls will stand at 12,000 versus 64,000 previously, with the unemployment rate rising to 4.7% from 4.6% and average hourly earnings up by 0.2% month on month.
US business sentiment: Consensus forecasts are that the US ISM manufacturing PMI will slip to 48.0 in December – from 48.2 the month before – while the services equivalent will fall to 52.0 versus 52.6 previously.
US consumer sentiment: Consensus forecasts suggest the preliminary January reading of the Michigan consumer sentiment index will slip to 52.7 from 52.9.
Euro-area inflation: Consensus expectations are that the flash reading of the December euro-area Consumer Price Index will fall to 2.0% from 2.1% year on year – with the core iteration dropping to 2.3% from 2.4% – and will rise by 0.3% versus -0.3% month on month in November.
Euro-area retail sales: Retail sales in the euro area are expected to have risen by 0.5% month on month over November, versus 0% previously.
In focus: Four in a row?
Investors have enjoyed significant stockmarket gains over the past three calendar years but, as 2026 begins, they may be nervously wondering whether a fourth period of positive returns is plausible. Valuations in some parts of the market would appear to provide reason for caution – and yet it is difficult to find a proximate cause for a market slump.
A fourth year of gains would not be unusual. Data from BMO, for example, shows the average S&P 500 bull market over the past 50 years has lasted an average of six years, with the longest being 11 years and the shortest 1.9 years. Markets can often run hot for longer than investors expect.
Since 1979, the MSCI World index has made a positive return in 35 out of 47 years. It made gains for eight years from 1979 to 1986 while 1995 marked the start of another run of gains – for five years in a row. 2003 kicked off four years of gains and markets also rose for six years in a row from 2012.
It is worth noting that those positive runs have usually come after significant weakness – the Global Financial Crisis and the technology bust being notable examples. Covid pandemic notwithstanding, that is not true for the current market yet clearly another year of gains would not be a statistical anomaly.
There are also supportive macroeconomic factors – for example, the tax cuts contained in the ‘One Big Beautiful Bill’ should put more dollars in US consumers’ pockets, and interest-rate cuts are still on the table. “AI-driven capex, industrial policy shifts, greater business resilience to tariffs and likely monetary easing should sustain activity and extend the cycle further, ”notes the Amundi Investment Institute meanwhile. Its base case for 2026 is mildly pro-risk, supporting equities and investment grade credit.
Fiscal expansion is also a feature in Europe. Deutsche Bank research suggests German spending plans are likely to gain traction from 2026. Defence spending across the region may also prove important as European leaders are forced to step in to fill the gap left by the US. Asia is also seeing liquidity loosened – notably, China’s president Xi pledged “more proactive” macro policies in his ‘tea party’ speech at the end of 2025, which was seen to hint at more spending in the year ahead.
Of course, this all needs to be weighed against some clear risks. “US tariffs could rise further, affecting sectors such as pharmaceuticals and semiconductors, and new levies on China could cause further disruption,” warns Preston Caldwell, senior US economist at Morningstar Investment Management. “Equally important, our research suggests the US economy has yet to fully absorb the tariff hikes already implemented.”
Once installed, even the most dovish Fed chair will have one eye on their legacy.”
He adds that the Federal Reserve will continue to influence markets – and there is a persistent worry that whoever replaces Jerome Powell on his retirement as Fed chair in May will let inflation ‘run hot’. President Trump has made it clear he plans to pick a candidate receptive to more rate cuts – in which case, all bets are off.
Markets may react badly to any sign the US central bank is losing control. Caldwell acknowledges this could be a problem but notes: “While some investors worry about the erosion of Fed independence, the Fed’s commitment to inflation stability is deeply ingrained and is expected to endure any temporary political pressures.” There is a view that no incoming chair wants to be another Arthur Burns, the 1970s Fed chair who let inflation run rampant and, once installed, even the most dovish Fed chair will have one eye on their legacy.
The AI ‘bubble’
The impact of artificial intelligence looks set to be crucial in the overall trajectory of markets. The BlackRock Investment Institute points out AI has help lift US stockmarket valuations to all-time highs, adding: “The Shiller price-to-earnings ratio shows US stock valuations are the most expensive since the dotcom and 1929 bubbles. Market bubbles have arisen in all major historical transformations – and that could happen again. But those bubbles also grew for some time and only became obvious after they burst.”
The institute’s view is that revenues could start to justify the increasingly enormous spend on AI, but it continues: “It is unclear how much will accrue to the tech companies building AI. That is why they are not on autopilot and could adjust plans with greater visibility on revenues and as stark energy constraints bite. The latter could slow the buildout but create other opportunities. We stay pro-risk and overweight US stocks on the AI theme.”
Diversification benefits
There are smart people on both the ‘pro’ and ‘anti’ side of the AI bubble argument but, for investors, the better question is whether the AI giants will be a good bet in the year ahead. Global stockmarket concentration in the US technology sector remains as high as at the start of 2025.
“The concentration in markets has become eye-watering,” says James Thomson, manager of the Rathbone Global Opportunities fund. “We see danger lurking in the index from this concentration and a more balanced, broader portfolio should drive better returns in 2026, as the market expands its appeal.”
Concentration risk in US mega-caps and the possibility of US exceptionalism fading argue for geographic and sector diversification.”
For its part, the Amundi Investment Institute says the tech theme is broadening beyond the US to China, Taiwan, India, Europe and Japan, adding: “Concentration risk in US mega-caps and the possibility of US exceptionalism fading argue for geographic and sector diversification.
“We favour combining AI exposure with defensive and cyclical themes: financials and industrials set to benefit from higher investment, defence names tied to security spending, and green transition stocks linked to electrification and grids.”
Diversification has already been a theme in 2025, of course – and it is well worth noting the return on the S&P 500 for euro-based investors over the past 12 months was a paltry 3.9%. Such a consideration is likely to be important again in 2026 – particularly if the US starts to wobble.
The BlackRock Investment Institute agrees, observing: “We think portfolios instead require a clear ‘plan B’ and a readiness to pivot quickly.” It suggests idiosyncratic exposures in areas such as private markets. Amundi meanwhile suggests a variety of hedges, including “gold, selected currencies (JPY, EUR), and inflation-linked instruments – and a greater but selective allocation to private markets.
“Private credit and infrastructure are in the spotlight to improve income and inflation resilience and to benefit from structural themes such as electrification, reshoring, AI and robust demand for private capital.” For his part, Thomson expects a volatile year of equity market performance with many sectors running “red hot and then ice cold”.
As things stand, there is no pressing reason why global stockmarkets cannot make it four years in a row – but market leadership has already shifted. Diversification into technology companies in regions beyond the US and a shift into other sectors could characterise the year ahead. AI will need to show some proof points in 2026 to justify its lofty valuations.
Read/hear more on this from BlackRock here, from the FT here and from Morningstar here
In focus: Footsie ‘dino’ soars
The FTSE 100 index tipped over the symbolic 10,000 mark on its first trading day of 2026. This capped a strong year for the UK index, which rose 22% over 2025, fuelled by a better performance from financials and defensive companies. That puts it firmly ahead of more glamorous markets, such as the S&P 500.
According to Jemma Slingo, pensions and investment specialist at Fidelity International, the 10,000 breakthrough represents “a historic moment for UK markets and a powerful signal of how far sentiment has shifted over the past year”. “After years in the shadows, London’s so-called ‘dinosaur’ index has roared back to life, driven by strength in banking, mining and defence stocks,” she adds.
The question for investors now is whether the main UK index can maintain its momentum. There is also a debate to be had around whether its success could draw investors back to the UK market and galvanise the unloved small and midcap sectors.
In spite of this strong run of performance, Slingo argues valuations remain attractive within the FTSE 100. “The index still trades at a discount to the US and Europe – even as sentiment towards UK companies improves,” she continues. “With around a quarter of FTSE 100 revenues coming from the US, investors are gaining exposure to global growth at a discount – and with a healthy dividend yield to match.”
It is worth noting that, in common with other markets, the gains in the FTSE 100 have been narrowly led over the year, with a significant chunk of the performance coming from a handful of top-performing stocks, such as BAE Systems ad Rolls-Royce.
Could the success of the largecap index filter down to smaller companies? Small and midcap stocks had another lacklustre year in 2025, with the FTSE Small Cap index up 9.7% and the FTSE 250 up 9.3%. Notably, these gains came from strong earnings performance, share buybacks and takeover bids, rather than any renewed interest from investors in the sector.
New research from J.P. Morgan Personal Investing does suggest sentiment could be coming round, with nearly three quarters (72%) of UK investors considering investing in domestic stocks in 2026. While the FTSE 100 may be the early beneficiary, the bargains on offer in UK small and midcap stocks may not go unnoticed indefinitely. Smaller companies may also enjoy a boost from lower interest rates.
UK small and midcap stocks have been cheap for some time. While other markets, including UK largecaps, have caught up with global peers in 2025, they continue to lag. Valuations look increasingly anomalous and more interest in the UK should help their cause.
