Market Update: Reflecting on 2025 and what comes next
As the Christmas season rolls ever closer and we get our lives organised for the holidays, it can be helpful to do a similar check-in on our finances, both short-term and long-term.
In the short term, that might mean setting a realistic Christmas and summer budget, and making sure you have enough cashflow for known (and potentially some unknown) expenses.
In the longer term, it’s about checking whether you’re still on track for your financial goals and whether your investments, and the level of risk you’re taking, still feel right for you.
A noisy year for news and markets
The term “silly season” is often used to describe the summer months when serious news thins out and lighter stories fill the headlines. Something similar can happen in financial media, where there’s no shortage of opinions, and not all of them are helpful.
2025 has been unusual for the speed at which major world events have unfolded and then been replaced by the next big story. That makes it harder than ever to work out which headlines really matter for long-term investors and which might simply be part of the short-term noise.
One example was the “Liberation Day” tariffs announced by President Trump on 2 April 2025. These tariffs triggered sharp falls in global share markets, with major US indices experiencing some of their largest single-day point drops in history. At many points in the past, an event like this might have dominated the entire year.
Instead, by August markets had largely digested the news, new negotiations were underway, and prices had recovered to levels not far from where they were before the tariffs were announced. It was a reminder that while events can move markets quickly, they don’t always change the long-term picture.
United States
By the end of the year, many of the tariff impacts had been absorbed following a series of trade negotiations and pauses. While uncertainty remains, particularly around the longer-term trade relationship between the US and China, markets are currently operating on the assumption that global trade will broadly continue.
The US economy has a “two-speed” feel. Companies linked to artificial intelligence(AI) and related technologies have seen very strong share price performance, while other sectors have faced higher costs and more cautious investment.
The US Federal Reserve has been cutting interest rates to support economic growth. Lower interest rates have provided support for share markets, even as parts of the economy remain under pressure.
One area where volatility has been very visible is in cryptocurrencies. Investor interest was boosted earlier in the year, and prices for assets like Bitcoin rose sharply. However, more recently there has been a significant reversal, with Bitcoin falling around 36% from its October 2025 highs, which is a reminder that assets which rise quickly can also fall quickly.
For some investors, the combination of hype, easy access via exchange-traded funds (ETFs) and complex underlying technology has made it easy to underestimate the risks. As one commentator noted, accessibility is not the same as understanding.
China
China was one of the few countries to directly challenge the US tariffs, leading to a period of tit-for-tat increases that saw tariff rates reach eye-watering levels at their peak. China also sought to use its dominance in rare-earth minerals as a bargaining chip, something that has prompted many countries to look for alternative supply chains, a process that will take years.
Beyond trade, China faces several structural challenges: a multi-year housing downturn, an ageing population, high debt levels and relatively weak domestic demand. In response, it has leaned more heavily on exports, particularly in areas like electric vehicles, which has created tensions with trading partners whose local industries are under pressure.
Europe
Europe has remained heavily focused on the ongoing war between Russia and Ukraine and the risk of any spillover. At the same time, there are signs of a desire to be less dependent on the US and China, particularly in areas like energy and defence.
The region still faces headwinds –modest economic growth, less exposure to fast-growing AI sectors, and demographic pressures – but a clearer path toward resolving the war in Ukraine would free up both political and financial resources for other priorities.
AI: promise and uncertainty
AI has been one of the most persistent themes of 2025. Views on its impact range from transformational and positive to deeply concerning, with many shades of grey in between.
What we can say for now is that businesses closely associated with AI such as chipmaker NVIDIA, have enjoyed very strong share price gains and, in some cases, have become the largest companies in the world by market value.
Whether these prices are fully justified will only be known with hindsight. A fair description at this stage is that many of these companies look “fully priced”: if AI delivers on the most optimistic expectations, current prices may be reasonable; if not, they could prove to have been too high.
New Zealand
Closer to home, New Zealand has had a tough year economically. The recession has proved more persistent than many would have hoped, despite periodic signs of “green shoots”.
The Reserve Bank has now begun cutting interest rates to support growth. While this may eventually ease repayment pressure for borrowers, it also means returns on cash and term deposits are likely to decline. Something income-focused investors may want to keep in mind.
Looking ahead, 2026 brings another election, which will no doubt dominate local headlines. The hope is that some of today’s green shoots can develop into a more sustained recovery.
What might 2026 bring?
With a healthy dose of humility about the limits of forecasting, NZBritannia’s current view is that:
- Inflation is likely to continue trending lower, which would support either stable or gently falling interest rates.
- Economic activity may gradually pick up from today’s subdued levels.
- AI will continue integrating into everyday life, accompanied by increased calls for regulation and oversight.
- Government finances are likely to remain under pressure, which could see discussions about higher or additional forms of taxation over time.
These are of course, only indicative expectations rather than predictions, and they may change as new information emerges. There are also plenty of risks such as geopolitical tensions, natural disasters, unexpected policy changes and new technological shifts, to name just a few. Any of which could influence the outlook.
What you can control
In a world where so much is uncertain, it’s helpful to focus on the things you can control.
- Know your budget and cash position. Make sure you understand your day-to-day spending and have enough cashflow to meet your commitments. If you’re unsure, talk to your adviser.
- Stay connected to your long-term plan. Check that your investments still align with your goals, timeframes and comfort with risk. Understand where you’re invested, how diversified you are, and what kind of ups and downs, you should expect along the way.
- Review your goals. Life changes, and financial goals change with it. Reviewing and updating your goals regularly, and making sure your plan still supports them, can be just as important as the investments themselves.
Once you’ve done those things, give yourself permission to switch off a little and enjoy the break. Knowing your financial foundations are in good shape can make it easier to relax and spend time with the people who matter most.
From all of us, have a safe and happy Christmas and a restful start to 2026.
The information contained in this publication is intended for general guidance and information only. It has not been personally prepared for you. Therefore, you should not act on this information if you have not considered the appropriateness of this information to your personal objectives, financial situation and needs. You should consult with us before making any investment decision. Historical market performance may not be indicative of future market performance.