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Global market summary in Q4 2025
2025 was a busy and eventful year for markets, marked by shifting inflation trends, evolving interest rate expectations, and recurring geopolitical and policy surprises that kept investors on edge.
Against this backdrop, the final quarter of the year delivered further gains for global equities and US bonds, with several major indices closing 2025 near record highs.
October began with the US government shutdown and concerns around it, as furloughs and broader economic uncertainty briefly weighed on sentiment. However, markets proved resilient, with investor focus quickly shifting to expectations of Federal Reserve (“Fed”) rate cuts and solid corporate earnings by month's end.
In Japan, the appointment of Prime Minister Sanae Takaichi attracted attention amid political tensions. Her commitment to proactive fiscal spending on defense, stimulus, and cost of living support reassured investors. Strong earnings, Fed rate cuts, and pro-growth policies fuelled a sharp rally in the Nikkei in November.
By December, global equities and US government and investment-grade corporate bonds posted gains, while precious metals such as gold and silver reached record highs. Demand for safe-haven assets increased as central banks diversified reserves amid a weaker US dollar and Fed easing.
Overall, markets climbed a wall of worry in 2025, delivering broad-based gains across equities, bonds, and select commodities.
How did global stock markets perform in Q4 2025?
In Q4, global stock markets posted steady further gains, finishing off a strong year as indices in the US and abroad, particularly in developed markets, finished near record highs. Returns broadened beyond US big tech, with international markets, especially Europe, Japan and parts of Asia, outpacing the US as investors shifted their attention to regions with cheaper valuations and strong earnings from various sectors. Despite this shift, markets are still supported by enthusiasm around AI-related companies.
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Please note that the market index serves as a benchmark for reporting purposes and doesn’t mean PensionBee’s funds are directly invested in that index.
^ The S&P Emerging and S&P Developed Ex-U.S. data are reported in multiple currencies, and all others are reported in USD.
Developed market stocks finished Q4 2025 on a strong note, with broad global indices delivering solid gains beyond the US markets. The S&P Developed Market Country Index posted 5.8% gain, key countries including the UK, Japan and South Korea led performance. UK stocks benefited from strength in traditional sectors including financials and mining, supported by lower rate cuts by the Bank of England as well as a weaker US dollar. Japanese equities advanced on optimism around fiscal stimulus under the new Takaichi government, while South Korea outperformed as semiconductor stocks surged on sustained AI-driven demand.
The US stock market posted modest gains in Q4, with the S&P 500 rising 2.7%. Volatility remained contained, as some investors took a step back after earlier market highs. Despite challenges like the longest US government shutdown and slowing momentum in the tech sector, resilient corporate earnings across all 11 sectors supported overall performance (with 81% of S&P 500 companies posting higher-than-expected results). The Fed’s December rate cut of 0.25% further weighted towards investors’ long-term horizon, rather than short-term policy uncertainty.
Small cap stocks also brought modest returns, with the S&P Small Cap 600 posting 1.7% in the fourth quarter. The surge in small cap stocks was primarily driven by lower-quality companies, fueled by increased activity from retail investors and their higher risk appetite. Many of these companies, however, lacked earnings or dividends. By the end of 2025, there was a notable shift among investors who began to focus on companies with strong traditional fundamentals, such as dividend payouts and robust cash flows.
Emerging markets posted positive returns, with the S&P Emerging Markets Index increasing by 1.6% in the quarter. Asia was the key driver of performance, led by Taiwan and China, where the semiconductor sector showed strong gains due to a continued surge in demand related to AI technologies. Latin America also had a strong quarter, benefiting from central bank rate cuts and resilient demand for commodities such as copper in Chile.
^ S&P Developed Country and S&P Emerging Country indices are reported in multi-currencies, and all others are reported in their local currency.
The stock market ended the year on a strong note, despite various political events occurring in the US and around the world. By the year's end, concerns were growing that a possible burst of an AI bubble, as the performance of the technology sector lagged behind that of the materials and financial sectors, as shown in the bar chart below. The results from Q4 and the past 1 year showed a divergence as investors began shifting their focus towards different sectors at the end of the year. This shift was driven by fears around an AI bubble, prompting investors to explore alternative asset classes. The materials sector, in particular, benefited from increased demand for precious metals, as central banks worldwide sought safe haven in response to the weakening US dollar.
The sector performance data is sourced from 13 Charts on Q4’s Tech Sector Market Jitters article published by Morningstar.
How did US bond markets perform in Q4 2025?
In the last quarter, US bonds saw gains amid the Fed’s sustainable loosening policy, a response to the cooling labor market. The Fed cut rates twice (both times by 0.25%) from the previous quarter. This level brought the rate to the Fed’s target rate to the 3.50%-3.75% range, the lowest since 2022.
Bond investors’ risk appetite picked up toward the end of the year, supported by the Fed’s multiple interest rate cuts. This shift benefited riskier markets, with US high yield (also known as “junk bonds”) bonds standing out, with the ICE BofA US High Yield Index posting gains of 1.3%.
US government bond (also known as ‘Treasuries’) yields went up over the quarter. The 10-year Treasury yield rose from 4.10% to 4.16% (+0.06%), with the Bloomberg Long U.S. Treasury Index down -0.3%.
The 2-year Treasury yield fell from 3,55% to 3.48% (-0.07%), with the Bloomberg 1-3 Year U.S. Treasury Index up 1%.
US bonds in 2025 delivered solid returns overall, helped by high starting yields and the Fed’s multiple rate cuts, but with a clear divergence between sectors. Short-term Treasuries benefited most from declining interest rates, while long-dated Treasuries lagged as investors demanded extra yield for long run inflation and fiscal uncertainty. High yield bonds performed strongly, supported by decent growth and investors’ search for high income in a lower interest rate environment.
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