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A new year
The full-year investment returns for 2025 were impressive, although the markets experienced some turbulence along the way. The economic outlook for the new year is mainly positive, and corporate earnings growth is expected to be strong globally. We therefore recommend keeping equities overweight. However, you should be prepared for price fluctuations as speculation over an AI bubble continues and the Fed will receive a new chairperson.
Coming out of a strong investment year
All in all, 2025 was quite a good year for investments, although there were also moments of uncertainty along the way. The global return index, which includes dividends, rose by 8% in euros and by 20% in local currencies. The dollar weakened by 12% against the euro during the year, leaving the return on the North American equity market at 4.5% in euros. European equities achieved an impressive return of 20%, and the Helsinki Stock Exchange was among the best in Europe with a return of 35%. The emerging markets as a whole generated a return of 18%, but there were large differences between countries. In Korea, the AI boom boosted stock prices by a whopping 77%, while the return on the Indian stock market was 8% negative. The appreciation of the euro, however, diminished returns from the emerging markets, too.
Fixed income investments generated a reasonable return. However, the return on eurozone government bonds was only 0.6%, as the slight rise in long-term yields pushed down bond values. Corporate bonds, on the other hand, achieved returns of 3–5%, while money market investments returned 2.5%.
The biggest correction in the equity markets occurred in early April, when President Donald Trump announced that he would impose higher-than-expected tariffs on US trading partners. However, the equity markets soon recovered with a new rally once Trump backed down from his toughest threats. The economic impact of the tariffs was clearly milder than what was feared.
Clear divergence among the Magnificent Seven
Although there was a broad-based rise in the equity markets last year, there were fairly large differences in returns between sectors. In the United States, the strongest share price increase was experienced in the IT sector, driven by semiconductor companies. The so-called Magnificent Seven, on the other hand, no longer remained ahead of the rest, as only Nvidia and Alphabet managed to clearly outperform the general index. The year was not a triumph for technology companies anyway. At the end of January, the prices of American technology companies fell when the Chinese company DeepSeek released a competitive AI model. Global investors turned their attention to Asian technology companies, attracted by lower valuation multiples and strong growth. However, American technology companies regained their popularity in the summer, after a better-than-expected earnings season. The rally of the technology companies began to lose steam in the final quarter of the year, as high valuation multiples raised fears of a bubble.
In Europe, the financial sector, utilities (electricity, water and gas companies) and manufacturing were the biggest risers. The manufacturing sector’s rally was driven by defence stocks, which are the obvious beneficiaries of the growing defence investments of European NATO countries. Many other manufacturing companies also did well last year despite the tariffs imposed by the United States. On the Helsinki Stock Exchange, companies such as Wärtsilä, Metso and Konecranes posted strong performance.
Favourable outlook
The new year looks mostly positive from an investor’s point of view. We expect a globally diversified equity portfolio to generate a return of 5–15% this year and we recommend keeping equities overweight.
In the United States, economic growth is expected to reach around 2%, which is slightly above the long-term trend. Early this year, consumer purchasing power will be boosted by record-high tax refunds, which come as a result of the retroactive tax cuts instituted by the One Big Beautiful Bill Act. Economic growth will also be enhanced by data centre investments, even though a significant proportion of the technology used in the centres will be imported from Asia. It remains to be seen whether consumer demand will be boosted by President Trump’s promised “tariff rebate cheques” worth up to 2,000 dollars, which would be partly financed by funds collected with tariffs.
In Europe, all eyes are on Germany, where the economy is expected to turn to growth after three years of stagnation, as massive investments in defence and infrastructure accelerate. Economic growth is also expected to pick up in the Nordic countries after a weak period. China’s economy is likely to continue its mixed performance. The weakness of the housing market and the sluggish labour market will keep households frugal, but investments in technology sector growth and exports will continue.
As for interest rates, there are no more rate cuts expected in the eurozone, but the markets are pricing in more rate cuts in the United States. An environment in which the economy is growing steadily but interest rates are falling has typically been favourable to the equity markets. However, US interest rate cuts should be decided by the Fed, not the White House. The markets will be closely monitoring who President Trump, a supporter of lower interest rates, will appoint as the new Fed chair. The Fed’s independence is important, as an excessively loose monetary policy could cause the economy to overheat and valuation bubbles to form.
Strong earnings growth
Corporate earnings growth is expected to accelerate globally to around 15% in 2026, compared to an estimated 10% in 2025. Earnings growth is expected to be distributed more evenly than last year across different sectors and geographical regions, which may reduce differences between returns.
We recommend overweighting European equities, as corporate earnings growth is expected to accelerate this year to 12% from last year’s zero growth. The Helsinki Stock Exchange is expected to enjoy earnings growth of up to 21%, but forecasting errors are often greater in a relatively small market. Major earnings growth is expected from Finnish forest and steel companies, among others.
In North America, earnings growth is expected to accelerate slightly to around 15%. Last year, earnings growth was boosted by the weakening of the dollar, which is unlikely to be repeated this year, at least not to the same extent. We maintain a neutral weight for North America, as the upside potential of equities is limited by fairly high valuations. The earnings-based valuation multiples of the major technology companies are still reasonable, but the valuation multiples based on free cash flow are clearly higher. This is due to large investments and relatively long depreciation periods.
In the emerging markets, earnings growth is expected to reach 18%. Korea and Taiwan continue to lead in earnings growth, thanks to the large semiconductor companies based in these countries. Although semiconductor companies are very cyclical, this year’s order books are already full, reducing uncertainty about earnings performance. We expect the Indian stock market to pick up as corporate earnings growth accelerates and investors diversify their portfolios beyond the AI theme. In Japan, earnings growth is expected to accelerate to 9%. We are keeping Japan underweight due to slower earnings growth than in other regions and uncertainty related to currency exchange rates.
Among sectors, we are overweighting financials and health care. In Europe, the financial sector was already a top performer last year with a return of almost 50%. The recovery in investment activity and a stable interest rate environment will continue to boost banks’ business prospects this year. In the United States, the financial sector is expected to benefit from deregulation and strong investment banking growth. We upgraded the health care sector to overweight in December as the political risks that overshadowed the industry’s outlook eased following the price and tariff agreements signed with the Trump administration. The valuation level of both sectors is moderate in relation to the growth outlook.
Moderate returns on fixed income investments
Fixed income investments should not be forgotten, as they effectively diversify the risk of your portfolio. We recommend a neutral weight for all fixed income segments, as the current yields on investment grade corporate bonds and government bonds are close to each other. This is due to the fact that credit spreads on corporate bonds are quite low from a historical perspective.
Credit spreads may therefore widen slightly, especially in the United States, where technology companies are increasingly seeking to borrow from the market to finance AI investments. So far, the cash flow of most of these companies is so strong that the increase in the amount of their debt is not yet a cause for concern, except in a few cases.
