Executive Summary

Global financial markets ended 2025 on a generally positive note, although performance differed substantially between regions and sectors. International developed equities outperformed the United States, cyclical and value-oriented shares gained relative to mega-cap technology, and investors entered 2026 with growing confidence that economic expansion could continue despite persistent inflation, high government borrowing and geopolitical uncertainty.

The MSCI World Index gained approximately 0.8% in US-dollar terms during December, while the MSCI World excluding the United States advanced approximately 3.0%. The S&P 500 gained around 0.6%, reflecting a further broadening of market leadership away from the largest artificial-intelligence beneficiaries.

The Federal Reserve reduced its target range by 25 basis points to 3.50%-3.75% on 10 December. The decision was unusually divided: nine policymakers supported the reduction, one preferred a larger half-point move and two favoured leaving rates unchanged. The Fed also stated that downside risks to employment had increased while inflation remained somewhat elevated.

The Bank of England reduced Bank Rate from 4.00% to 3.75% by a narrow 5-4 vote. UK inflation had fallen to 3.2% in November, while wage growth, services inflation and economic activity showed further signs of moderation.

The European Central Bank maintained its deposit facility rate at 2.00%. Updated ECB projections suggested inflation would remain close to the 2% target over the medium term, while economic growth forecasts were revised moderately higher.

Japan moved in the opposite direction. The Bank of Japan raised its policy rate by 25 basis points to 0.75%, its highest level in approximately three decades, continuing the country's gradual transition away from ultra-accommodative monetary policy.

Long-dated government bonds generally weakened despite central-bank easing. The US 10-year Treasury yield rose around 16 basis points during December, German 10-year Bund yields approximately 17 basis points and Japanese 10-year yields around 23 basis points. Fiscal issuance and inflation concerns increasingly influenced longer maturities independently of short-term central-bank policy.

Gold gained approximately 2% and completed its strongest calendar year since 1979, while oil declined for a fifth consecutive month. Bitcoin weakened by around 4%, extending the more difficult digital-asset environment that had emerged during November.

Key Themes During December

• Global equities ended 2025 near record levels.
• International equities outperformed US markets.
• Market leadership broadened away from mega-cap technology.
• The Federal Reserve reduced rates to 3.50%-3.75%.
• The Bank of England reduced Bank Rate to 3.75%.
• The ECB maintained its deposit rate at 2.00%.
• The Bank of Japan increased its policy rate to 0.75%.
• Long-term government yields rose despite monetary easing.
• Gold completed an exceptional year.
• Bitcoin and broader digital assets remained under pressure.

Global Economic Overview

The global economy entered 2026 with greater resilience than many investors had anticipated earlier in 2025. Monetary policy had become less restrictive across several major economies, while corporate earnings, household spending and government investment continued to support activity. Inflation nevertheless remained above target in several countries, limiting the scope for aggressive easing.

United States

US economic activity continued to expand at a moderate pace, while employment growth had slowed and unemployment had moved gradually higher. Delayed third-quarter GDP data showed annualised growth of approximately 4.3%, demonstrating that aggregate economic activity remained powerful despite softer labour-market conditions.

The combination of strong output and softer employment complicated monetary policy. The economy appeared capable of avoiding recession, but persistent inflation and tariffs meant that the Federal Reserve could not focus exclusively upon the labour market.

Federal Reserve

The Federal Reserve reduced its target range by 25 basis points to 3.50%-3.75%. The Committee stated that downside risks to employment had increased in recent months and that inflation remained somewhat elevated.

The three dissenting votes illustrated significant disagreement over the appropriate policy stance. Stephen Miran preferred a half-point reduction, while Austan Goolsbee and Jeffrey Schmid preferred no change.

The Federal Reserve also stated that reserve balances had declined to ample levels and that it would purchase shorter-term Treasury securities as necessary to maintain an adequate supply of reserves. These purchases were intended to support money-market functioning rather than constitute conventional quantitative easing.

Eurozone

The ECB maintained its three policy rates unchanged, leaving the deposit rate at 2.00%, main refinancing rate at 2.15% and marginal lending rate at 2.40%.

ECB staff projected headline inflation of 2.1% for 2025 and 1.9% for 2026, while economic growth was projected at 1.4% for 2025 and 1.2% for 2026. Domestic demand and earlier interest-rate reductions provided support despite global trade uncertainty.

United Kingdom

The Bank of England reduced Bank Rate to 3.75% by a 5-4 vote. Inflation had declined to 3.2% in November from 3.6% in October and 3.8% in September, while services inflation and wage growth also showed continued moderation.

The Bank indicated that rates were likely to continue on a gradual downward path, although future decisions would become increasingly close as policy approached a less restrictive level.

Japan

The Bank of Japan raised its policy rate to 0.75%, continuing the gradual normalisation that had begun after decades of extremely low interest rates. Japanese government-bond yields rose materially as investors anticipated the possibility of additional increases during 2026.

China

China continued to balance weakness in property and household confidence against technology investment, manufacturing and targeted policy support. Equity markets advanced modestly during December, with the Shanghai Composite gaining approximately 1.4%.

Global Outlook

The principal global question entering 2026 was whether monetary easing could support growth without causing inflation to reaccelerate. Higher long-term sovereign yields demonstrated that investors remained concerned about fiscal deficits and inflation even as central banks reduced short-term policy rates.

Equity Markets

Global equities advanced during December, but leadership broadened considerably. International markets and cyclical sectors generally outperformed US mega-cap technology, producing a healthier but more complicated investment environment.

United States

The S&P 500 gained approximately 0.6%, while the Nasdaq finished slightly lower according to several year-end market reviews. Investors rotated towards financials, industrials and other economically sensitive businesses as enthusiasm surrounding the largest AI beneficiaries moderated.

Strong economic growth supported earnings expectations, but high valuations and the scale of AI capital expenditure encouraged greater selectivity.

Technology and Artificial Intelligence

Artificial intelligence remained one of the most important long-term investment themes, but December continued the valuation reassessment that had begun during November. Investors increasingly distinguished between companies generating measurable AI-related cash flow and those requiring substantial expenditure before commercial returns became visible.

Financials and Industrials

Financial and industrial companies benefited from stronger economic-growth expectations and the broadening of market participation. Investment banking, infrastructure, defence and domestic capital expenditure remained constructive themes entering 2026.

Europe

European equities outperformed US markets as banks, mining, energy and other value-oriented sectors benefited from resilient growth expectations and lower valuations. The MSCI World excluding the United States gained approximately 3.0% during the month.

United Kingdom

The FTSE 100 rose approximately 2.45% during December and completed 2025 with a gain of roughly 25.8%. Mining, defence and expectations of lower UK interest rates contributed to the year-end advance.

Japan

Japanese equities gained modestly during December after their exceptional October rally. The Nikkei 225 rose around 0.3%, while investors balanced fiscal optimism against higher domestic interest rates.

China and Hong Kong

Chinese equities advanced modestly. Policy support and technology investment remained positive themes, while property and consumer confidence continued to limit broader enthusiasm.

Emerging Markets

Emerging-market equities produced strong relative performance during 2025 and remained constructive in December. Korea and Taiwan were among the strongest Asian markets during the month, gaining approximately 12.7% and 5.7% respectively amid renewed semiconductor demand.

Indicative December Performance

Fixed Income Markets

December demonstrated the growing separation between short-term central-bank policy and long-term government borrowing costs. Central banks in the United States and United Kingdom cut rates, but longer-dated sovereign yields generally increased.

US Treasuries

The Federal Reserve cut rates by 25 basis points, supporting the front end of the Treasury curve. The 10-year Treasury yield nevertheless increased by approximately 16 basis points as investors focused on strong economic growth, inflation risk and government borrowing.

European Government Bonds

German government bonds weakened, with the 10-year Bund yield rising approximately 17 basis points to its highest level in around two years. Greater defence and infrastructure issuance remained an important structural influence.

UK Gilts

The Bank of England's rate cut supported shorter maturities, while the 10-year gilt yield increased approximately four basis points. Markets anticipated additional easing during 2026 but recognised that future decisions would become increasingly finely balanced.

Japanese Government Bonds

Japanese government bonds weakened materially after the Bank of Japan increased rates. The 10-year yield rose around 23 basis points and moved above 2%, its highest level since 1999.

Corporate Credit

Corporate bonds generally outperformed sovereign debt. The Bloomberg Global Aggregate Corporate Index gained around 0.3%, while global high-yield bonds returned approximately 1.0% as credit spreads narrowed.

Private Credit

Private-credit markets entered 2026 with strong institutional demand but increasing competition. Lower short-term policy rates improved borrower affordability, while higher long-term sovereign yields limited the extent to which overall financing costs declined.

Credit selection remained important as lenders balanced attractive income against borrower-friendly documentation and lower spreads on premium transactions.

Foreign Exchange

Currency markets were shaped by divergent monetary policy and a weaker US dollar. The US Dollar Index declined approximately 1.1% during December and finished 2025 more than 9% lower.

US Dollar

The dollar weakened as the Federal Reserve delivered another rate reduction and markets anticipated at least some additional easing during 2026. Strong US growth prevented a more substantial decline.

Euro

The euro benefited from dollar weakness and the ECB's decision to leave rates unchanged. Improved European growth projections also provided support.

Sterling

Sterling gained approximately 1.8% against the dollar despite the Bank of England's rate cut. The move reflected broad dollar weakness and expectations that UK easing would remain gradual.

Japanese Yen

The Bank of Japan's rate increase provided fundamental support to the yen, although fiscal expansion and the still-wide international yield differential continued to create volatility.

Chinese Renminbi

The renminbi remained closely managed. A weaker dollar reduced depreciation pressure, while accommodative Chinese monetary policy limited the scope for a substantial appreciation.

Commodities

Precious metals continued their exceptional year, while energy prices remained under pressure from strong supply and moderate demand growth.

Gold

Gold gained approximately 1.9% during December and completed 2025 with a gain approaching 65%, its strongest annual performance since 1979.

Central-bank purchases, lower short-term interest rates, geopolitical risk and concern about government debt remained important structural supports.

Oil and Energy

WTI and Brent crude both declined for a fifth consecutive month. WTI completed 2025 nearly 20% lower as increased global supply outweighed geopolitical risk and moderate demand growth.

Copper and Industrial Metals

Industrial metals remained supported by structural investment in electricity networks, renewable generation, defence and data centres. Short-term prices nevertheless remained sensitive to Chinese manufacturing and global growth expectations.

Critical Minerals

Rare-earth and strategic-mineral supply remained a priority for Western governments despite improved US-China trade relations. Diversification of processing and magnet manufacturing continued to attract public and private investment.

Agricultural Commodities

Agricultural markets remained influenced by weather, trade relations and geopolitical disruption. Improved US-China relations reduced some uncertainty surrounding major crop exports.

Digital Assets

Digital assets failed to participate fully in December's broader risk-asset recovery. Cryptocurrency prices remained under pressure after November's severe correction.

Bitcoin

Bitcoin declined approximately 4% during December, disappointing expectations of a year-end recovery. The asset therefore completed the final two months of 2025 considerably below the highs established earlier in the year.

Ethereum

Ether declined approximately 3%, while a broad index of smart-contract-platform tokens fell around 8%. Thirty-three of the 35 smart-contract-platform assets tracked by VanEck recorded negative monthly returns.

Institutional Participation

Institutional interest remained significant despite weak prices. Regulated ETFs, custody infrastructure, tokenised funds and stablecoin applications continued integrating digital assets into conventional financial markets.

Risk Considerations

• Bitcoin declined approximately 4% during December.
• Ethereum declined approximately 3%.
• Alternative smart-contract assets generally underperformed.
• Institutional adoption did not eliminate cyclical price weakness.
• Tokenisation remained a separate structural opportunity from cryptocurrency speculation.

Private Equity

Private-equity markets entered year-end with improving financing conditions and stronger exit opportunities than had existed during much of the previous three years. Public markets remained close to record levels, while policy rates had declined across the United States, United Kingdom and eurozone.

Deal Activity

Healthcare, business services, industrial technology, financial services and infrastructure remained active areas. Buyers increasingly prioritised companies capable of generating reliable cash flow without depending upon continued multiple expansion.

Financing

Lower short-term rates improved floating-rate acquisition financing, while banks, syndicated loan markets and private lenders competed for high-quality transactions.

Higher long-term sovereign yields prevented financing costs from returning to the exceptionally low levels experienced before 2022.

Technology Investments

The year-end rotation away from mega-cap technology encouraged greater discipline when valuing private AI and software businesses. Commercial adoption, customer retention and free-cash-flow generation became increasingly important measures of quality.

Exits

Strong public equity markets improved the IPO environment entering 2026. Strategic buyers also retained substantial balance-sheet capacity for acquisitions.

Secondaries

Secondary transactions remained an important source of portfolio liquidity. Mature assets and funds with visible exit prospects continued to attract significant institutional demand.

CE Global Private Equity Observations

• Lower short-term rates improved transaction economics.
• Higher long-term yields continued to constrain leverage.
• Public markets offered stronger exit opportunities.
• Technology valuations required increasing discipline.
• Secondaries remained an important source of liquidity and diversification.

Artificial Intelligence & Technology

Artificial intelligence remained the defining technology investment theme of 2025, but year-end market performance demonstrated an important transition from enthusiasm towards greater discrimination between business models.

Artificial-Intelligence Investment Cycle

Semiconductor companies, networking suppliers, power providers and data-centre developers continued to benefit from enormous infrastructure programmes. At the same time, investors became increasingly concerned about the time required for hyperscalers and software providers to earn satisfactory returns on this expenditure.

Semiconductors

Demand remained structurally strong for advanced processors, high-bandwidth memory, networking and optical interconnects. Competition, model efficiency and customer concentration remained important risks.

Cloud Computing

Cloud providers continued expanding AI capacity while increasingly emphasising usage, enterprise adoption and monetisation rather than infrastructure announcements alone.

Enterprise Adoption

Businesses entered 2026 with greater experience deploying AI within coding, customer service, financial analysis, marketing and administrative workflows. Investment increasingly required measurable cost savings or revenue benefits.

Technology Risks

• AI infrastructure expenditure remained historically high.
• Free-cash-flow pressure became increasingly important.
• Market leadership had become concentrated.
• Model efficiency could change long-term processor requirements.
• Power availability remained a constraint on data-centre expansion.

Sector Spotlight

Private Infrastructure Debt

December's sector spotlight examines private infrastructure debt as investors seek contractual income and exposure to the large capital requirements associated with energy, digital infrastructure and transport.

Investment Characteristics

Infrastructure debt can provide long-duration income supported by physical assets and contracted or regulated cash flows. The asset class includes both traditional infrastructure and rapidly expanding digital and energy projects.

Energy Networks

Transmission lines, substations, storage and renewable-energy connections require substantial capital. Debt financing can provide investors with exposure while reducing direct sensitivity to equity valuations.

Digital Infrastructure

Data centres, fibre networks and communications assets remain major borrowers. Projects with secured power and long-term customers generally offer stronger credit characteristics than speculative developments.

Transport and Social Infrastructure

Roads, rail, healthcare facilities and public buildings can provide diversified sources of long-duration contracted revenue.

Private-Market Opportunities

• Data-centre debt
• Electricity-grid financing
• Renewable-energy infrastructure
• Transport projects
• Digital fibre networks
• Asset-backed infrastructure lending

Principal Risks

Projects remain exposed to construction delays, refinancing costs, regulatory changes and customer concentration. Higher long-term sovereign yields can also reduce the relative value of infrastructure debt if spreads do not adjust sufficiently.

Investment Perspective

Private infrastructure debt offers an increasingly attractive route to structural themes without relying entirely upon equity-market multiple expansion. Contract quality, asset necessity and conservative leverage remain central to underwriting.

Regulatory Update

December's regulatory environment focused on central-bank policy, artificial intelligence, digital assets and the increasing interaction between private capital and essential infrastructure.

Federal Reserve Liquidity

The Federal Reserve stated that reserve balances had declined to ample levels and would begin purchasing shorter-term Treasury securities as necessary to maintain sufficient reserves. Institutions needed to distinguish these reserve-management operations from conventional quantitative easing.

Bank of England

The 5-4 vote to reduce Bank Rate demonstrated that future easing decisions would become increasingly finely balanced. Financial institutions needed to incorporate a broader range of interest-rate scenarios into 2026 planning.

Artificial Intelligence

Businesses continued implementing staged EU Artificial Intelligence Act requirements covering governance, documentation, transparency and risk management.

Digital Assets

Greater institutional participation increased the importance of custody, liquidity, leverage and counterparty controls even as tokenisation and regulated digital financial infrastructure continued to develop.

Infrastructure Investment

The growing role of private capital within electricity, data-centre and strategic infrastructure increased scrutiny of resilience, financing structures and concentration risks.

Compliance Priorities

• Incorporate divergent central-bank scenarios into funding plans.
• Monitor Federal Reserve reserve-management operations.
• Continue implementation of EU AI obligations.
• Review digital-asset liquidity and custody controls.
• Stress-test infrastructure projects against higher long-term yields.
• Maintain independent private-market valuation governance.

Looking Ahead

Markets entered 2026 with global equities close to record levels, monetary policy considerably less restrictive than twelve months earlier and a broader set of regions and sectors contributing to investment returns.

Federal Reserve

The Federal Reserve entered 2026 with rates at 3.50%-3.75%. Its December projections and communication suggested that additional easing remained possible but that the threshold for further reductions had increased because inflation remained above target and economic growth was resilient.

Bank of England

The Bank of England entered the year at 3.75%. Falling inflation created room for further reductions, but the narrow December vote showed that policymakers remained concerned about inflation persistence.

European Central Bank

The ECB appeared increasingly comfortable with its 2.00% deposit rate. Updated projections showed inflation close to target and modestly stronger growth than expected earlier in the year.

Bank of Japan

Japan remained the major developed-market exception, with policy moving towards higher rather than lower rates. Investors would monitor wage settlements, inflation and the effect of fiscal stimulus on further Bank of Japan decisions.

Equity-Market Breadth

December's rotation away from mega-cap technology offered the possibility of healthier market participation during 2026. Financials, industrials, international equities and selected smaller companies could benefit if economic growth remained resilient.

Artificial Intelligence

AI would remain a central investment theme, but valuation discipline was likely to become increasingly important. Companies capable of converting infrastructure expenditure into sustainable revenue and free cash flow would be better positioned than businesses relying largely upon market enthusiasm.

Government Debt

The rise in long-term yields despite central-bank cuts demonstrated that fiscal policy would remain a major investment consideration during 2026. Government borrowing could keep long-duration financing costs elevated even where short-term policy rates declined.

Private Markets

Lower short-term financing costs and stronger public markets offered a better backdrop for transactions and exits. High-quality companies could attract significant competition, making entry-price discipline especially important.

CE Global Private Equity Perspective

December concluded a year in which investors navigated tariffs, geopolitical conflict, rapid changes in artificial intelligence, diverging monetary policies and significant regional market rotation. The year demonstrated the value of maintaining exposure beyond a narrow group of US technology companies.

CE Global Private Equity believes that infrastructure, healthcare, cybersecurity, financial services, AI-enabled business services and selected industrial companies offer attractive opportunities entering 2026. Private infrastructure debt also offers an increasingly compelling means of gaining exposure to long-term capital investment while prioritising contractual income and downside protection.

Artificial intelligence remains a transformative long-term opportunity, but valuation and financing discipline are increasingly important. Businesses should be evaluated according to commercial adoption, cash generation and competitive advantage rather than participation in the AI theme alone.

Entering 2026, CE Global Private Equity continues to favour resilient cash flows, moderate leverage, diversified revenue and investments offering multiple routes to value creation and eventual exit.

This market review is provided for general information and discussion purposes only. It does not constitute investment, legal, tax or other professional advice, nor an offer or solicitation to purchase or sell any security, financial instrument or investment product. Market values can rise or fall, and past performance is not a reliable indicator of future results.