Why you should look beyond the headlines

Hello, it's Friday, the 12th of December. This is going to be our last video of the year 2025. So, what I thought I'd do is really review what happened over the course of the year. We thought quite an interesting way to do that is if you imagine you put your investments to work on the first of January. You haven't looked at them over the course of this year, we're just about to unbox them now, but you have had news flow over the course of the year. You know, would that implication be a positive one for markets having not looked at what's been going on, or do you think it would have been a negative one? 

So I've got here is a list of the main headlines over the year. I asked Chat GPT to give me the 12 monthly most important market-related headlines. I'll run through those and then just give a recap in terms of what's happened in markets year to date to yesterday to the 11th of December. 

So without further ado, January, the headline according to ChatGPT, 'Trump's policy shock drives global repricing of rates, trade and energy.' If you remember in January, there was a slew of executive orders, a very busy first month for the President, and again, you know, an impact here, bond deals rose on expectations of looser fiscal discipline, EM FX sensitive to trade policy, lots of volatility. So already a sort of a bit of a shock at the start there, perhaps. And also, of course, ChatGPT didn't mention it, but also we had DeepSeek in January as well. 

February, 'US Ukraine, rare earth tension disrupts critical minerals sentiment'. Into March, we had 'Middle East escalation pushes oil sharply higher', and then other bits and pieces here, energy equities outperforming, airlines logistics and chemicals lagging, unsurprisingly, major input cost, of course, coming from oil, break even inflation widened as higher oil fed into inflation expectations. So again, a pretty sort of punchy bit of news there for markets, perhaps. 

In April we had the 'death of Pope Francis triggering catholic market donations, tourism and emerging market yield shifts'. What ChatGPT didn't mention actually for some reason was the Liberation Day tariff surprise, which arguably was a much bigger market relevant bit of news, and we saw a significant sell-off through the middle of the year as a consequence of those tariffs. We will see tariffs return to the news later on in May, 'Israel declared intent for long-term Gaza control, global risk assets falter,' volatility indices, so VIX shifted higher, defence equities continued their outperformance, defence being a sort of a regular feature of the course of this year, not least at the start of the year, when Donald Trump signaled a desire to leave NATO to be a bit more self sufficient, perhaps a bit less reliant on the US, and that really did drive defence stocks, particularly in Europe, over much of the year. In June, Russia's large-scale missile attacks fuel the defence sector rotation, so continue to catalyse that defence sector trade. Aerospace and defence ETFs led sectoral flows, European cyclicals underperformed, investors' price high probability of prolonged conflict and elevated NATO fiscal spending. Which again is the point I sort of made a second ago. Into July 'record European heat wave drives utilities, insurers and agri commodities volatility'. Again, you know, not necessarily a very positive headline from a market perspective. Soft commodities rallied, insurance facing rising catastrophe related losses. Utilities facing margin pressure. So again lots of sort of perhaps cautious news there for markets. 

In August a sort of continuation of that theme. 'Europe's worst wildfire season intensifies ESG and climate risk repricing'. Into September more sort of geopolitical conflicts here; 'Russia launches largest drone and missile strike, bond markets focus on geopolitical duration'. So risk off sentiment strengthened, gold moved higher, European credit spreads widened, geopolitical risk became a dominant driver over macro fundamentals. October; 'NATO border military exercises heightened defence spending expectations.' Again a return to that defence capex and investment theme that we've seen repeated over this year. Defence capex visibility improved sovereign issuance projections nudged higher, defence equities maintained their strong momentum. 

In November, 'US China tariff pause sparks global risk rally'. One of the few positive headlines we get over these 12 headlines. Tech and semiconductor equities benefited most, EM equities saw inflows, industrial supply chain players rallied on improved forward guidance visibility. And then December, it's clearly not all done yet, but the the most impactful December headlines so far, according to AI; 'Trump's AI executive order reshapes the US regulatory landscape'. And large cap AI slash software names are benefiting from reduced regulatory uncertainty, cloud providers and chipmakers have gained. 

It's quite an interesting list of news stories over the course of the year. Obviously, as with all AI output, there's a bit of a caveat around it. It may not necessarily be totally accurate. The fact that April didn't lead with tariffs should rightly give us a bit of a pause for thought there. Overall, I think it's fair to say that the headlines were broadly negative. I think that they also encapsulate nicely the fact we've almost had a year of two or three phases. We had the first period where you had DeepSeek and a few bits of concern, but generally sort of plodding along. Then you had the tariff surprise in April and a pretty big slump in the middle of the year, particularly in the US. But then in the final third of the year, a decent rally from the US, actually pulling it back into contention for reasonable returns over the course of the year. But overall, I think it's fair to say a sort of a mixed bag in terms of these headlines, probably on balance a bit on the negative side, and yet, as you probably already know, we've actually had a decent year for equity market returns. 

To give you some context on that, global equities up sort of 12-13%, US up 11 and a bit percent in sterling terms year to date. The UK is up 22.8%, Europe's up 25.8%, emerging markets up 22.7%, Asia up about 19%, Japan up 16.3%. So, you know, pretty much every major equity region had a double-digit year over the course of 2025. 

Interesting picture from a stylistic perspective to give you some context there. Globally, value slightly underperformed growth over the course of the year. It actually looked stronger in the first half of the year, in the second half growth sort of ran again. But the strongest factor really over the course of the year was momentum, and the weaker ones, notably quality, was one of the weaker ones with around about an 8% return over the course of the year. Smaller companies are actually doing fairly well as well. These are all global measures. Regionally, you'll have a different picture, but overall it's a momentum driven year, as we probably all know innately. Growth is doing well, value a bit less well, and quality really being the laggard out of the sort of large capitalisation factors there. 

Into fixed income, a good year for fixed income as well so far. High yield up about 10% in sterling terms. Global aggregate bonds, which is 'govis' and some investment corporates and other bits and pieces, higher quality parts of the fixed income market up about 8% and the gilts up about 4.8% over the course of the year in sterling terms. 

So if we look back at our hypothetical environment where you put your money at work on the 1st of January, you don't look at it again, you just hear those headlines, it's unlikely I think you would have presumed you'd had such a strong outcome whether it'd be in equities or fixed income over the course of this year. 

So it's been a good year for markets so far despite news flow and it's a decent reminder of course that markets as much as they are sensitive to news flow and sentiment in the short run, over the medium to long term they should be driven by fundamentals. They should be rewarded if they are cheaply valued. Markets should see that, flow should turn up and it should push them up over the medium to long term. And certainly over the course of 2025, while it can't be said to be medium to long term it's only one calendar year, we've certainly seen a rewarding period for investors in the face of some pretty harsh headlines and news flow on the way. 

That's it from me. I hope you have a good end to the year and enjoy the festive period with family and loved ones. And thank you, of course, for your support of Liontrust Multi-Asset team over the course of 2025. And we look forward to seeing you in the new year.