Resilience amid disruption

Fahad Hassan, CIO

2025 will be remembered not for the disruptions that dominated headlines, but for the resilience that defied expectations. Despite Liberation Day's tariff shock, corporate profits recovered, inflation retreated, and both stock and bond markets delivered meaningful progress. The data told a story that surprised many: beneath the turbulence, fundamental strength persisted and ultimately prevailed. 

President Trump's Liberation Day announcement in April triggered the most severe four-day market decline since the 1950s, with Goldman Sachs raising recession probabilities to 65%. The breadth of tariffs caused significant unwinding of US asset allocations. Yet the administration's swift reversal on the 9th of April caused a sharp turnaround. Markets surged, with the S&P 500 posting its largest single-day gain since 2008 (up 9.5%).  

By May, US-China negotiations yielded a mutual tariff reduction, culminating in October's comprehensive trade agreement signed in South Korea. The deal propelled global equities to new all-time highs. 

Critically, inflation continued to fall despite concerns around the impact of tariffs. The Federal Reserve's gradual rate cuts reflected confidence that price pressures were contained even as policy uncertainty peaked. Chair Powell's measured approach validated the view that the economy could withstand significant shocks without reigniting inflation. 

Corporate management demonstrated resolute adaptability throughout the year's upheavals. Four consecutive quarters of double-digit earnings growth provided the bedrock for market recovery, with the third quarter seeing 83% of US large cap companies exceeding profit expectations. 

The technology sector led with 25% earnings growth, propelled by artificial intelligence infrastructure spending. This rising corporate capital expenditure, particularly for AI-data centres, effectively offset concerns about consumer spending that worried investors throughout the year. Companies found multiple ways to expand margins despite persistent cost pressures, with analysts now projecting 11% earnings growth for 2025 and 14% in 2026 (source – FactSet). The earnings momentum proved far more durable than tariff headlines suggested, providing fundamental support that sustained investor confidence. 

Resilience across many asset classes 

The year's most striking feature was how quickly markets absorbed and moved past disruption. European equities emerged as standout performers, benefiting from improving economic data and reallocation away from "US exceptionalism". UK markets demonstrated resilience through strength in financials, energy, and materials. Asian markets, particularly China, showed strong late-year momentum following the trade agreement, rewarding investors who maintained diversified exposures. 

US equities recovered impressively despite a sharp decline during Q2, with major indices achieving new highs by year-end. While dollar weakness held back currency adjusted returns for client portfolios, the stampede of capital away from US assets proved to be short lived.   

Fixed income markets provided crucial support to portfolios during the April sell-off. Government bonds and investment grade corporate bonds rallied on rising recession risks. High yield debt suffered an initial setback, but like equities, went on to post strong year-to-date returns. Our active fund allocations in the sector, side stepped much of the melee through higher allocations to European high yield debt, which outperformed US counterparts. Gold has delivered another year of double-digit returns, as rampant inflation, rising developed-market debt loads and fiscal ill-discipline has caused a migration to the world's best known store of value. Additionally, unilateral action by the Trump administration and the freezing of Russian assets has caused central banks to increase their gold holdings.

Portfolio positioning: Patience rewarded 

Client portfolios navigated the volatility through disciplined positioning. Our decision to delay rebalancing during April's turmoil allowed portfolios to avoid crystallising losses; instead, we were able to capture the recovery that followed. The controlled asset allocation adjustment, modest US equity reductions balanced by increased UK equity income exposure, positioned portfolios to benefit from geographic rotation. 

European equity allocations delivered particularly strong results, generating impressive returns across large and small cap allocations. Portfolios achieved marginal outperformance versus their stated benchmarks while demonstrating that diversified allocations and tactical patience can successfully navigate disruptive events. 

The lesson from 2025 is that while volatility remains inherent to markets, the underlying strength of corporate earnings, moderating inflation, and exposure to diversified opportunities can offset short-term uncertainty. 

Past performance is not a guide to future performance. Capital at risk.