As we enter 2026, it is worth taking stock of what actually happened – and what matters most for Manx investors looking ahead. In this summary we’ll be covering:
- Markets Climbing the “Wall of Worry”
- Geopolitics and Policy: Noise, but Not Paralysis
- Markets: A Year of Better‑Than‑Expected Returns
- H1 2026: Key Things to Watch
- Edgewater’s View
Climbing the “Wall of Worry”
At the start of 2025, investor sentiment was cautious. Inflation had fallen from its 2022 peaks but remained above target in many regions, interest rates were still restrictive, wars continued in Ukraine and the Middle East, and trade tensions – particularly US tariffs – clouded the global outlook. Added to this were growing concerns about government debt and long‑term fiscal sustainability.
Yet, in aggregate, markets performed positively, climbing the “wall of worry”, in many instances, to new all-time highs. Central banks in the US, UK and euro area began to cautiously ease policy as inflation continued to moderate. The US Federal Reserve ended 2025 with interest rates at 3.50–3.75%, the Bank of England cut Bank Rate to 3.75%, and the ECB cut its policy rate to 2.15%. China remained in easing mode throughout in a bid to combat weak domestic demand and deflationary pressures.
Economic growth was uneven but positive. The US avoided recession, supported by resilient consumers and strong services activity. The UK and euro area experienced slower growth, with public spending playing a larger role as private investment remained subdued. The Isle of Man stood out, with independent forecasts pointing to roughly 3% real GDP growth in both 2025 and 2026, underpinned by financial services, digital activity and targeted government initiatives.
Geopolitics and Policy: Noise, but Not Paralysis
2025 saw no shortage of geopolitical risk. The war in Ukraine continued, conflict between Israel and Hamas persisted with wider regional implications, and shipping disruptions in the Red Sea periodically pushed up energy and freight costs. Tensions also increased across Asia, with trade and technology restrictions between China and its neighbours becoming more explicit.
In parallel, US tariffs re‑emerged as a meaningful macro factor, weighing on manufacturing sentiment and reinforcing the trend toward more fragmented global trade.
Despite this, the global system adapted. Supply chains adjusted, energy markets remained broadly balanced, and corporate profitability – particularly in the US – proved more resilient than many feared.
A further important domestic backdrop for Manx investors was the UK Budget. As we highlighted in our earlier analysis, the Budget underlined the growing constraints on UK fiscal policy. Although headline tax rates were left unchanged, the continued freezing of income‑tax thresholds and allowances increased the effective tax burden, while higher debt‑interest costs absorbed a growing share of public spending.
Limited fiscal headroom, rising borrowing requirements and pressure on public services reinforced the fact that policy flexibility in the UK remains constrained and the outlook for growth remains weak. For IOM investors, this strengthened the case for diversification and a strategic approach to asset allocation and wealth management.
A notable geopolitical development during the year was the evolving situation in Venezuela. Threats directed at neighbouring Guyana earlier in 2025 by the Maduro regime, alongside longstanding concerns around narco‑trafficking and regional stability, prompted a sharp escalation in US pressure on Caracas, culminating with the seizure the Venezuelan President from his compound in Caracas.
Washington’s actions reflected broader strategic priorities: countering Chinese influence in Latin America, securing long‑term energy access, and containing inflation pressures via greater control of global oil supply. An immediate by‑product of this approach was a clear weakening of Venezuela’s claims over Guyana’s rapidly developing offshore oil reserves, where US‑based energy companies have already made substantial investments.
For markets, the impact was second‑order. But it served as another reminder that geopolitics, domestic politics and commodity markets remain tightly intertwined, particularly in energy‑sensitive regions.
Markets: A Year of Better‑Than‑Expected Returns
Given this challenging backdrop, market performance surprised many on the upside.
Equity markets (2025 calendar‑year performance)
- S&P 500 (US) +16%
- Nasdaq Composite (US tech) +20.7%
- FTSE 100 (UK) +21.5%
- DAX (Germany) +23%
- TOPIX (Japan) +22%
Whilst there were increasing concerns about an “AI bubble”, breadth improved notably in US markets. By year‑end, every S&P 500 sector was trading above its 200‑day moving average except Consumer Staples – classic healthy bull‑market behaviour.
Commodities (2025 performance, USD terms)
- Gold: +65%, its strongest annual gain since the late 1970s, driven by central bank buying, geopolitical tensions and expectations of lower interest rates.
- Silver: +145%, the best performing major commodity of the year, supported by supply deficits and strong industrial demand (notably from solar and electrification).
- Copper: +40%, marking its strongest year since 2009 as AI related infrastructure, electrification and supply constraints tightened the market.
- Oil (Brent crude): –18%, its steepest annual decline since 2020, as global oversupply and rising OPEC+ output outweighed geopolitical disruptions.
These divergences underscore that 2025 was not a uniform “commodities bull market” but a tale of powerful winners and clear losers, reinforcing the importance of diversification and disciplined long‑term planning.
Currencies and Bitcoin (BTC)
- Bitcoin (BTC) – 6% for the 2025 calendar year. Despite making record highs in October, 2025 marked a rare negative post‑halving year for Bitcoin as macro liquidity and higher real yields weighed on risk assets in Q4.
- US dollar (DXY) –10% for 2025. The dollar weakened against its peers in 2025, reflecting the Fed’s pivot to cutting rates and global rotation into non-US stocks. Despite UK fiscal concerns, sterling strengthened 7.5% against the dollar.
Other notable asset class performance
- Latin American equities (iShares ILF ETF): +45%, benefiting from commodity exposure and improving fiscal credibility.
- Defence stocks (VanEck Defence UCITS ETF – DFNS): +30%, reflecting sustained increases in global defence spending.
AI: A Structural Theme Intensifies
If one theme defined corporate investment in 2025, it was artificial intelligence (AI).
Major technology firms committed unprecedented levels of capital expenditure to data centres, semiconductors and power infrastructure. Meta, for example, indicated plans to spend roughly 35% of revenues on data‑centre investment. Taiwan Semiconductor Manufacturing Company (TSMC) continued shifting critical operations to the US, highlighting the strategic importance of AI infrastructure and supply‑chain resilience.
This investment surge supported not only technology stocks but also industrials, construction, power equipment and commodities such as copper.
H1 2026: Key Things to Watch
As we move through the first half of 2026, several themes are likely to shape markets:
1. Interest rates and inflation – Further gradual rate cuts are expected in the US and UK, but the speed will depend on the pace of inflation, wage growth and job losses.
2. Government debt and bond yields – High public‑sector debt levels and still‑elevated bond yields mean markets will be sensitive to fiscal credibility, particularly in the US and UK. A sustained rise in yields could challenge both equity valuations and government finances.
3. Economic growth – The balance between slowing labour markets and easing financial conditions will be critical in determining whether growth stabilises or weakens further.
4. Geopolitics and trade policy – Tariffs, energy security and International conflicts remain key sources of volatility.
5. AI investment sustainability – The scale of current capital spending is transformative, but investors will increasingly focus on returns and productivity gains rather than headline growth alone.
Edgewater’s’ View
2025 was a reminder that markets are forward‑looking mechanisms. Despite persistent concerns – inflation, geopolitics, high debt and structural change – disciplined investors were rewarded for staying invested and remaining diversified.
Uncertainty has not disappeared as we enter 2026, but nor are we starting from a position of fragility. Central banks have more flexibility, inflation is lower, and long‑term investment themes such as AI and energy transition remain firmly in place.
If you have any questions, concerns, or would like to discuss how these themes may affect your investment portfolio, please don’t hesitate to contact us. We would be very happy to help you navigate the opportunities and risks ahead.
This article reflects our own interpretation and expectations regarding global macroeconomic and geopolitical developments. It is intended solely for general information and discussion purposes and should not be regarded as financial, legal, or professional advice.
