CIM Market Update December 2025

Tech in Turbulence

· Markets saw renewed volatility in November amid AI concerns and shifting Fed rate expectations.

· Developed-market equities fell in sterling terms despite a broadly resilient US earnings season.

· Equity leadership rotated from US tech toward Europe, while Asian markets and emerging regions weakened.

· Global bonds were flat overall, as mixed UK and US data balanced sentiment.

· UK autumn 2025 Budget froze income tax thresholds, reversed the two-child benefit cap and raised taxes broadly.

Global markets experienced their first significant spell of volatility since the “Liberation Day” tariff announcements in April. After months of strong performance across most asset classes, investor sentiment grew more cautious in November as concerns resurfaced around the durability of earnings in artificial intelligence-linked companies and the uncertain path of US monetary policy. The backdrop was complicated further by the continuation of the US government shutdown, the longest in history, which delayed key economic data releases and made it more difficult to gauge underlying economic conditions.

The shutdown was resolved mid-month, helping to stabilise market sentiment, although funding only runs through January 2026. With the potential for renewed disruption early in the new year, political risk remains an important consideration. Markets regained some composure once the shutdown ended, but developed market equities still finished the month lower in sterling terms.

Technology and AI-related stocks were at the centre of the month’s volatility. Despite robust quarterly results from leading AI companies, investors focused more intently on the sector’s elevated valuations, rising investment requirements, and the risk that profit margins may face pressure as spending continues to rise. While the fundamental backdrop remains broadly supportive, ambitious long-term expectations leave the sector more sensitive to shifts in sentiment.

In the US, the corporate earnings season concluded on a strong footing. Around four-fifths of companies reported better-than-expected earnings, with year-on-year growth in the low double digits. Forward estimates for both 2025 and 2026 continued to be revised higher, particularly in technology. Even so, equity market gains were modest, and for sterling investors were offset by a weaker US dollar. This muted response suggests that much of the good news is already reflected in valuations.

Regional performance diverged. European equities benefitted from less reliance on a narrow group of technology companies and more balanced earnings expectations into 2026. In Japan, local-currency gains were eroded by yen weakness, while several Asian markets saw consolidation after a strong year—particularly technology-focused economies such as Korea and Taiwan, contributing to emerging market underperformance relative to developed peers.

In fixed income, global bond markets were broadly stable. Softer US labour and confidence data provided support at various points, while uncertainty surrounding future supply and the Federal Reserve’s next policy steps created opposing pressures. Market pricing currently implies a rate cut in December, followed by another in spring or early summer 2026.

In the UK, inflation eased to 3.6% year-on-year. But gilt markets were dominated by anticipation surrounding the Autumn Budget. The run-up to the 2025 Budget saw an unusually intense period of speculation, amplified by the late leak of the Office for Budget Responsibility’s forecasts. With expectations of widespread tax increases already embedded, attention centred on where these would fall rather than whether they would occur. The Chancellor’s statement and accompanying “Red Book” confirmed a set of measures aimed at addressing fiscal pressures and advancing the Government’s focus on reducing inequality. Policies included an increase in the minimum wage and the lifting of the two-child benefit cap—both intended to address living standards, though their long-term economic impact remains the subject of debate. Meanwhile, the decision to freeze income tax thresholds beyond the next general election raised questions about the balance between near-term revenue and future political flexibility. Following the announcement, gilt markets found some support from the accompanying guidance indicating lower-than-expected issuance, helping stabilise returns late in the month.

Commodity markets delivered overall positive performance in November, with rising precious metal prices offsetting weakness in energy and industrial metals.

Overall, November represented a pause after a period of strong market returns. With valuations elevated in several concentrated areas of the market and growth assumptions already ambitious, broad diversification remains an important tool for managing risk and opportunity as we