MARKET INSIGHT – December 2025

MARKET INSIGHT

Prime Partners’ monthly analysis of global economic and financial market news.

Much ado about nothing

An investor returning from a yoga retreat away from all technology and without any access to financial information will certainly have heard alarmist talk about the month of November that has just passed. Indeed, terms such as “correction,” “crisis,” and “fear index” at levels close to those of 2020 have been regularly mentioned lately. However, stocks ended the month close to, or even slightly higher than, where they finished in October. So, is this fact or fiction?

The release of third-quarter figures from Nvidia, the world’s largest company by market capitalization, was expected to settle the debate over the validity of the high valuations of a technology sector that has been boosted by AI for nearly three years. The least we can say is that the results of the American semiconductor giant did not disappoint, far from it. But investor psychology is not an exact science and, after an initial very positive reception, a significant sector rotation away from technology stocks took place in mid-November, before a rebound in the last few days of the month.

“In the short term, the market is a voting machine, but in the long term, it is a weighing machine.” Among the many quotes attributed to legendary investor Benjamin Graham, this one illustrates the noise that regularly surrounds market participants in the short term, before they are able to distinguish more clearly between good and bad companies over time. The past few weeks have been full of alarmist comments, particularly regarding certain large technology stocks, whose huge investments in data centers, and sometimes their accounting treatment, are causing concern.

At this stage, it would be foolhardy to assert or deny that these worries are legitimate. The scale of artificial intelligence monetization remains difficult to assess and does not allow us to judge whether the major technology players are overdoing it in terms of capex. Let’s therefore keep in mind that companies such as Microsoft, Meta, Alphabet, and Amazon are giants with proven business models and significant profitability. A longer-than-expected return on investment or the emergence of a single winner in the AI race would obviously have significant consequences for these powerhouses, but would not spell doom for them.

The scale of artificial intelligence monetization remains difficult to assess and does not allow us to judge whether the major technology players are overdoing it in terms of capex

Let’s also keep in mind that Open AI, the cornerstone of most AI-related investments, remains a startup full of lofty promises but with uncertain profitability. As is often the case, we will strive in the coming months to remain reasonable and pragmatic about the technology sector, without succumbing to euphoria or excessive fears about the industry’s big players.

The noise, again, also had to do with the Fed in November and the continuation of reductions in interest rates. It was this factor above all that greatly disrupted market sentiment in recent weeks, with confidence in a further 25 basis point rate cut on December 10 fluctuating wildly in response to statements by various members of the institution. The longest shutdown in US history has deprived the US central bank of tangible data, and the potential rate cut expected in December will not be debated amid as many economic indicators as usual, particularly with regard to inflation and employment.

The theory of a “K-shaped” US economy seems to be confirmed, with a rapidly growing segment benefiting from the enthusiasm for AI on the one hand, and sectors clearly slowing down on the other, with consumers remaining very selective in their purchases. The fear of a rebound in inflation is not a scenario that can be ruled out in 2026, and such a development would dash investors’ hopes for a continued linear decline in interest rates. The resumption of the normal pace of economic data releases will provide greater clarity. The Fed and its future chairman, whom Donald Trump is reportedly about to announce, might then have to choose between supporting a potentially slowing job market and fighting a return of inflation.

There has been very little news in Europe in recent weeks. The Franco-German duo, once the driving force behind the EU, continues to struggle, with both countries attempting to emerge from their respective slumps. Political paralysis in France continues unabated, with no 2026 budget yet in sight. This situation, which is almost laughable and, to say the least, tiresome in the eyes of many French citizens, will not be without consequences for the country’s economy and finances, with a further downgrade of its debt seeming inevitable.

On the German side, the automotive industry remains mired in stagnation. It seems increasingly clear that the major German carmakers will struggle to boost their sales in China, where local players, heavily subsidized by Beijing, are now engaged in a relentless price war. Added to this are US tariffs, sluggish growth in Europe, and the cacophony surrounding the 2035 deadline for the complete phase-out of sales of combustion engine cars. The German auto industry is on its knees, and the impact of this situation is very significant within Europe’s largest economy.

In both cases, President Macron and Chancellor Merz are facing record levels of unpopularity. Their sustained presence on international issues, particularly the war in Ukraine, cannot hide a certain powerlessness to restart the economic engine on both sides of the Rhine. Without an improvement in momentum within Europe’s two biggest economies, it will be difficult to expect more than sluggish growth for the Old Continent.

The Chinese situation also showed little change in November. The most optimistic observers might point to a certain thaw in relations between Presidents Trump and Xi Jinping, but it seems more realistic to conclude that outright confrontation, particularly on trade issues, does not suit either side. Both are therefore showing a degree of pragmatism, while carefully avoiding the appearance of weakness or submissiveness. Although the country is no longer plunging into a negative economic tailspin following the huge real estate bubble of recent years, it is not yet recovering. Consumers remain very cautious and the pre-Covid boom years still seem a distant memory. However, China’s huge progress in the technology and renewable energy sectors cannot be ignored and encourages us to maintain a favorable view of emerging markets for 2026.

China’s huge progress in the technology and renewable energy sectors cannot be ignored

As we enter December, we can take stock of the past year and look ahead to 2026. Our allocations have performed very well, following strong results in 2023 and 2024. True to our belief that asset allocation and broad diversification are our greatest strengths, our portfolios weathered the volatility of 2025 (April, November) unscathed and generated solid returns.

Our exposure to equities has been gradually raised over the course of the year, and we do not rule out a final increase after the Fed’s next decision on December 10.

Performance is measured on a calendar basis, but the positioning of our portfolios and their active management are not subject to any time constraints. We will therefore start 2026 with the view that equities will remain central to performance generation, but that we must not allow ourselves to become overly fixated on the theme of artificial intelligence alone. It is US monetary policy and the actions of the Fed – and its new chairman as of May 2026 – that investors will be watching most closely.

Gold is the second biggest contributor to our portfolios’ performance this year. Despite a rise of more than 50% in 2025, the yellow metal remains among our favorites for next year. The trajectory of US debt, geopolitical tensions, and the slump in the dollar are all good reasons to conclude that gold remains an asset of choice, a true stabilizer for our allocations.

Finally, we will continue to maintain a highly diversified exposure to bonds, combining active, passive, and even alternative strategies in order to seek out the best return opportunities, whether in government or corporate debt, in both developed and emerging markets.

After a year of Trump 2.0 and the major upheavals that this has entailed, we believe it is essential to continue to endeavor to be “weighing machines” in the sense suggested by Benjamin Graham, without allowing ourselves to be distracted by the noise around us. In 2026, we will remain focused on analyzing hard facts in order to adapt the composition of our portfolios as needed, without sacrificing either risk-taking or prudence.