Back
We are nearly at the end of another year. It is always tempting to do some sort of recap of the last 12 months. But, equally, so what? 2025 is (nearly) in the books. It’s always possible that looking back and talking about last year will help get next year right. But I always think looking forward is a much better way to spend your time. One way to resolve this tension is to think about the longer-term structural themes that are in place today and we expect to remain in place for a while. I never want to be positioned on the wrong side of these trends. Yes: at some point they will end and potentially reverse. But I think you make more money sticking with them until they do start to turn as opposed to jumping off too early. One lesson you learn in this job is that markets can always run further and for longer than you ever think possible at the start.
In that spirit, here are two of the most important themes and trends that still look to be very much in place to me. The first one – which looked like it might be starting to break in the first half of 2025 – is American exceptionalism. At the start of the year, Europe, Japan and Emerging Markets looked to offer much cheaper valuations and less Trump risk. There was plenty of talk that the rest of the world ex-US might finally start to deliver for equity investors. And in the first half of 2025 this was indeed the case. However, the second half of the year has felt more like a return to business as usual. The US continues to dominate investment flows and narratives. This means I remain unconvinced by weaker dollar and global de-coupling stories. You can see the wobble in early 2025, but this cross-border investment trend still looks very much in place to me:
I would add that Trump is not playing much of a role here, good or bad. Instead, it is the US lead in technology that really matters. To understand the importance of this you only need to look at this chart which, for me, has been the single most important chart for asset allocators over the last 10 years:
As an equity investor, you need to own businesses that grow. And, at a high level, (nearly) all the earnings growth has been in US technology stocks. The US has 61 technology companies making more than $1bn a year in profits. France has three, Germany has two and the UK has one. And I do think this is about technology rather than any other secret sauce the US might have. You can see from the chart above that US companies ex-technology have also barely grown their earnings for the last few years. If you want to diversify away from AI risks I still think it makes sense to do so in the rest of the world: at least your lower earnings growth comes with lower rest of the world valuations.
The other longer-term trend I would highlight has been the resilience of the global economy. There have been plenty of times when economists and forecasters were saying a recession was just around the corner: 2016 post-Brexit, 2018, 2020 post-Covid and the 2022 inflation shock are just a few that come to mind. Yet the economy kept going forward in spite of all those headwinds. One reason was that consumers kept on spending. And it is worth pointing out that this was not financed by increased borrowing. The consumer, both here and in the US remains in good health. In the UK the savings rate is almost at 10% and near historic highs. And in the US consumer balance sheets also look strong. After growing sharply up to 2008, consumer debt has more or less flat-lined since then in real terms (see below). Looking forward to 2026, a solid economy normally means positive returns for risk assets. With tax cuts and interest rate cuts on the way, there is no reason to expect US consumer weakness any time soon.
