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Global stock markets have shrugged off turmoil from Donald Trump’s trade war and fears of a bubble in the artificial intelligence sector, posting double-digit gains for the third consecutive year in 2025.
Despite fears of fallout from Trump’s sweeping “Liberation Day” tariffs in April, Wall Street’s S&P 500 has surged more than 17 percent, beating many analysts’ forecasts and hitting record highs in recent months. It was little changed in early trading on New Year’s Eve, while shares in Europe and Asia were marginally lower.
The broader MSCI All Country World Index, which tracks large-cap stocks in developed and emerging markets, has gained more than 20 percent this year.
“It was an extremely strong year, even stronger than we expected,” said Venu Krishna, head of U.S. equity strategy at Barclays. “Despite all the policy uncertainties, including tariffs, broadly speaking the (US) economy and equity markets have been very resilient.”
Wall Street has seen gains this year despite a disappointing first few months.
In the early weeks of 2025, the release of a low-cost large language model by Chinese AI start-up DeepSeek stunned Silicon Valley and sent US tech stocks tumbling. Then in April, investors became nervous about the scale of Trump’s trade tariffs, triggering a big selloff in stocks, bonds and the dollar.
But strong corporate earnings from US companies and the prospect of the Federal Reserve resuming interest rate cuts encouraged investors to return to the equity market soon and place big bets on the transformative potential of AI. Faster-than-expected US economic growth also helped reassure investors.
“If you had told me at the beginning of the year that we would restart global trading, I would not have predicted that we would have such a strong equity year,” said Caspar Elmgreen, chief investment officer of equities and fixed income at Nordea Asset Management.
“But what we saw was a resilient economy and really strong corporate fundamentals,” he said.
However, the early rise in US stocks led other sectors to gain and many markets continued to outperform. Indices for Hong Kong, Japan, the UK and Germany have outperformed the S&P 500 this year, as has the broader MSCI gauge of emerging market stocks.
After such huge gains, some investors and analysts are warning about the longevity of the rally, which has been largely driven by the performance of Silicon Valley tech giants. The bull market has left valuations well above their historical averages and index returns have become increasingly dependent on the performance of only a small group of stocks.
“There is a risk of complacency when the market is so strong,” said Simon Adler, head of value equities at Schroders. “We are now entering 2026 where areas of the market look very, very fully valued. The downside risk has increased significantly.”
He pointed to the so-called Shiller cyclically adjusted price-to-earnings ratio of the U.S. stock market, ending up at just under 40 in 2025, an extremely high level relative to history.
The ratio of the S&P 500 was only higher in the early 2000s, just before the dotcom bubble burst. Starting with valuations at this level, the market has never generated above-inflation returns for investors, Adler said.
“It’s very rare for the S&P 500 to have double-digit returns four years in a row,” said Elias Gallou, investment strategist at Bank of America. “It could be – it’s just that the bar is very high. We’re starting at a very high valuation,” he said.
Altaf Kassam, Europe head of investment strategy and research for State Street Investment Management, highlighted the risks from such a small number of stocks driving the rally.
The so-called Magnificent Seven tech giants alone account for about a quarter of the MSCI World Index of global developed-market shares.
“This is a rally where it feels like people are uncomfortably excited,” he said. “Anytime you focus on names that have exactly the same business models, it’s worrying… it makes the market more fragile.”
Increasing market concentration has raised alarm over a dealmaking race in the AI sector, which has created a web of financial dependency. For example, ChatGPT maker OpenAI has taken shares in some of its infrastructure suppliers and received large investments from others.
“It’s like Jenga,” Kassam said. “If you take out one key block, the whole thing can come down.”
