The past year has been relatively strong for investors. It has spawned new winners on the stock market, and taking risks in interest rates has once again paid off. As the year approaches its end, it is time to sum up the past investment year and the market expectations for the upcoming year.
The market sentiment has simmered down again since the more volatile period in October-November. As a result, stocks have risen close to their peak levels and credit spreads have fallen.
In the last month, interest rates have been rising on both sides of the Atlantic. The depreciation of the dollar, which has become familiar over the year, has continued with the euro appreciating against the dollar in recent weeks.
Over the past year, the stock markets have performed relatively well. Currently, the return on the global stock market over the year has been around eight per cent, which is close to the long-term average. Although this year’s return is slightly lower than in the last couple of years, returns in recent years have been above average, so this year can still be considered relatively good.
Investors’ returns from the past year, however, strongly depend on where they have invested. Although stocks in the United States have performed well, the depreciation of the dollar has eroded the dollar returns for euro investors to the extent that, in euros, US stocks’ performance has been weaker than that of European stocks. Good returns have been seen especially in emerging markets, such as China and Taiwan. The Finnish stock market has also performed well.
Value stocks, particularly driven by financial services providers, have performed strongly this year in both Europe and the USA. In Europe, growth stocks have performed the worst, including many pharmaceutical companies that have struggled this year.
In addition to the financial sector, Europe has shown strong performance in industry, which is explained in particular by the defence industry. In the United States, growth has once again been driven particularly by technology companies, while growth in consumer sector companies has been weaker.
Currently, there are both positive and negative alternatives available for future economic growth. Risks in the United States are particularly related to the decline in private consumption, which is influenced by both the weakening of the labour market and inflation, which has not fallen to the two per cent target level. The markets also anticipate that monetary policy will be eased, making a decrease in inflation less likely. This, in turn, is likely to slow down the growth of private consumption, which could result in dwindling economic growth.
Positive expectations, on the other hand, are related to both fiscal and monetary policy on both continents. Changes to the large legislative package approved in the United States this summer, such as tax cuts, will take effect in early 2026, which is expected to support consumption and economic growth.
In Europe, fiscal policy, led by Germany especially, is expected to change in particular due to significant current and future investments in infrastructure and defence. Europe is presently experiencing some sort of recovery in confidence. Although earnings growth has not yet been significant, valuations have increased particularly due to the impact of rising market expectations.
Nothing presented here is or should be taken as an investment recommendation or solicitation to subscribe for, buy or sell securities. When making investment decisions, the investor must carefully familiarise themselves with the information given on the financial instruments and understand the related risks. The investor must base their decision on their own assessment, goals and financial situation. Risk is always inherent in investment activities. The value of the investment instruments may increase or decrease. The past performance of investment instruments is no guarantee of future performance.
