As 2025 comes to a close, we look back at a year marked by resilience, rapid innovation, and shifting global dynamics. Below, we highlight the key themes that shaped markets in 2025 and share our outlook for the year ahead.
2025 in Review
AI’s Ascent
Artificial intelligence became one of the most powerful forces in markets this year. Heavy investment in AI infrastructure helped support economic growth and drove strong equity gains in technology stocks. This first wave of AI spending (called “AI 1.0”) laid the foundation for future productivity gains across many industries.
A Shifting Global Landscape
Global politics played a leading role in market volatility. President Trump introduced broad-based tariffs to nearly every country, unsettling trade relationships and increasing uncertainty. Ongoing U.S.-China trade tensions, multipolar alliances, and rising military spending underscored a fracturing global order. Yet, regional trade truces provided pockets of stability.
Monetary Policy Pivots
Inflation continued to cool, allowing many central banks to balance the inflation and growth trade-off and continue cutting rates. The US Federal Reserve (supported by solid economic growth and low unemployment) held higher rates for the better part of the year before beginning its rate cutting cycle towards the end of 2025.
Commodity Volatility
Oil prices moved sharply on OPEC+ supply adjustments and macroeconomic uncertainty. Gold prices surged to record highs amid geopolitical uncertainty, central bank buying and efforts by countries to reduce reliance on the U.S. dollar.
A Global Party
Despite ongoing recession concerns, the U.S. equity market had an exceptional year backed by large capital expenditure for long term growth spending and record profits, UK’s undervalued equities outperformed, and Asia-Pacific markets (especially Japan) rallied on policy reforms. Canada’s equity market also outperformed on the back of strong commodity prices.
Outlook for 2026
Economic Growth
Current forecasts point to U.S. economic growth of about 1.9% in 2026. We see room for upside, driven by factors such as delayed benefits from lower interest rates, renewed government spending, tax related business investment and continued AI-driven capital spending.
Equities
Equity markets may deliver more modest returns after three exceptionally strong years. Sustaining above-average returns next year will depend on continued economic growth and further progress from AI. Given equities are starting the year at higher valuations, we favor high-quality companies with strong balance sheets and proven management teams.
Fixed Income
Bond markets may face muted returns as rate cuts pause. In this environment, careful bond selection matters more than simply reaching for higher yields. We prefer higher-quality bonds (“investment-grade” bonds) over lower-quality, higher-yield bonds (“junk” bonds).
Commodities
Oil demand is expected to peak in the next decade, but limited supply could still support prices. Gold prices may stay elevated on central bank demand, though volatility has increased. Copper could benefit from electric vehicle adoption and renewable energy investments, particularly if interest rates remain low.
Currency
The Canadian dollar could strengthen modestly in 2026 as interest rate differences between Canada and the U.S. narrow. However, stability in the upcoming trade negotiations (USMCA agreement) is an important risk factor to this forecast.
The Path Forward
Looking back, we are pleased with the impressive performance of both equity and bond markets in 2025, which supported exceptional portfolio returns. As we enter 2026, optimism remains, but we remain vigilant that markets are entering the year with higher expectations and greater sensitivity to economic or earnings disappointments.
Prudent portfolio management will need to balance short-term flexibility with long-term themes such as Artificial Intelligence, deglobalization, and demographic changes. As highlighted in RBC’s Global Insight 2026 Outlook “the future is here... and gathering speed.”
We have positioned portfolios defensively to start the new year with the goal of capturing opportunities while remaining prepared for potential volatility.
Thank you for your continued trust, we wish you a healthy and successful year ahead. If you have any questions, please don't hesitate to reach out by email at hayesvickers@rbc.com.