Investment environment overview 12/2025

With some waves of volatility seen throughout 2025, global financial markets stamped impressive yearly gains across all major asset classes, even as U.S. equities lost momentum in December amid year-end profit taking and continuing defensive rotation. American equities, in particular, captured the spotlight with a seven-month rally streak that ended in November for the Nasdaq and in December for the S&P 500. Nasdaq Composite was up 20% in 2025, while the S&P 500 gained 16%, marking the third consecutive year of a double-digit growth. European indexes continued to outperform their American counterparts, supported largely by more attractive valuations – the STOXX 600 gained 2.7% for the month and 36.7% (in dollar terms) for the year of 2025, also capping a third year of double-digit returns.

Meanwhile, the ECB held rates unchanged, continuing their data dependent stance despite moderate growth indicators. The Fed’s widely expected rate cut at its December meeting saw the target rate down to 3.50-3.75% and whispers of continuing QE measures. Precious metals rallied sharply over the month and continued to post generational records, supported by a weakening dollar, continued central bank purchases, and geopolitical uncertainty.

U.S. style SMO

The daring U.S. military operation on January 3, 2026 that resulted in the capture of Venezuelan President Nicolás Maduro introduced fresh geopolitical risks amid doubts that the “Ginger Swan” might continue this doctrine in other “unfriendly” countries. Equities were however resilient, with major U.S. and European indexes rallying as energy and defense stocks led gains.

Chevron, the only U.S. oil major with an active presence in Venezuela since 1923, rose 5% on January 5 on expectations of expanding access to the area and potential oil infrastructure reconstruction contracts.

Defaulted Venezuelan sovereign and PDVSA bonds surged as investors priced in political stabilization and eventual debt restructuring. Government bonds due in 2026 jumped to 42 cents on the dollar from roughly 33 cents, while PDVSA (state oil company) bonds maturing in 2035 climbed from around 26 cents to 33 cents.

Oil prices, however, showed only modest volatility. Brent and WTI traded in a narrow range, reflecting Venezuela’s current production of roughly 1m bpd, which is only around 1% of global output, despite holding over 300b barrels of proven reserves (world’s largest).

Years of underinvestment and deteriorated infrastructure mean supply growth under U.S. control would take years and any material impact remains a mystery and something to think about only in the long run.

A potential yield crisis in the making

Long term government bond yields have surged globally despite aggressive rate cuts, reflecting investor concern over mounting fiscal strain rather than monetary policy. 30-year bond yields of developed economies are near 4% according to a long-term gauge, the highest since 2009, with German and French borrowing costs hitting multi year highs and 30-year Treasuries rising above 4.8%. Notably, the IMF projects U.S. debt/GDP rising from ~120% in 2023 to 143% by 2030, potentially surpassing Italy and Greece, while global public debt is set to exceed 100% of GDP by 2029.

An unusual inversion has also emerged, as some top-rated corporates now yield less than sovereigns. Bloomberg notes firms like Microsoft, Airbus and L’Oréal issuing debt below government yields, with about 5% of French investment-grade bonds yielding less than OATs.

Japan’s bond market is also repricing sharply. The 30-year Japanese government bond (JGB) yield has risen above 3.5%, levels roughly on par with German Bunds. In December, the BoJ raised its policy rate to 0.75% (a 30y high) and signaled further tightening, sparking a violent sell-off across the JGB curve. As highlighted in our previous monthly report, higher JGB yields could make domestic Japanese assets more attractive, when even a modest reallocation making influence to global capital flows with implications for U.S. equities and bond markets.

FX gathers energy; precious metals on a generational run

January is an important month for the EUR/USD pair. We expect range bound trading through winter and spring with key levels to watch being 1.1850 on the upside and 1.1400 on the downside. Ideally, we’d like to see a dip closer to 1.1400 to sell the dollar, but we will not ignore a clear break of 1.1850, which could signal a stronger upward move.

December was extraordinary for precious metals, with moves rarely seen in decades. Prices hit all our upside targets and “then some” after “then some”. Gold was up 9.5%, silver added 48% and platinum was 54% up.

Oil remains a puzzle. Despite expectations of volatility, whether from global oversupply, tensions in Venezuela, or other potential geopolitical events, prices have been surprisingly steady. A short-term dip would not be surprising and could even be a wonderful buying opportunity with longer-term outlook remaining generally positive.